Will the US experience a recession ❓ 6 major characteristics and signals

What is economics? The four stages of the business cycle? What is a recession? Is the US in recession now? Should we go to the bottom or not.

There is no universally agreed definition of recession. One of the most common definitions is that a recession can only be defined as a recession when the gross domestic product (GDP) of the US falls for two or more consecutive quarters (six months or more).

What are the characteristics of the economy during a recession?

1. Decrease in GDP.

2. Economic activity becomes unstable, and companies cut expenses in order to survive.

3. The company cut expenses and began to lay off employees, and the unemployment rate rose. People with jobs, on the other hand, worry that they will lose their jobs, leading to a reduction in consumer spending.

4. The stock market increased debt in order to stabilize the economy.

5. The Federal Reserve will lower interest rates in an attempt to stimulate economic growth.

6. Stocks and other assets (such as houses) have depreciated, and a full-blown financial crisis is unfolding.

Well, if we want to know whether the US economy is currently in recession, we only need to find data to see if it is in line with the six points we just mentioned, or if it is partially compatible, we can find an answer.

GDP is a key economic indicator that allows economists and ordinary people to know whether a country is moving in the right direction.

When the pandemic hit in 2020, the US gross domestic product (GDP) was close to $22 trillion. The pandemic caused the US gross domestic product (GDP) to fall below $19.5 trillion for the first time since 2017. However, starting in the second quarter of the first year of the outbreak, the economy began to enter the fast track. In 2021, the US GDP grew by 6.9%, exceeding the general estimate of 5.5%. The revised annualized quarterly rate of US GDP for the fourth quarter of 2021 was 7.0%. In line with expectations, this was the strongest quarterly growth in 2021.

Meanwhile, on March 1, 2022, the Atlanta Federal Reserve released official data showing that it sharply lowered the US GDP forecast for the first quarter to 0.0% from 1.7% a while ago and 0.6% on February 25.

In the same period, Bank of America also lowered the US GDP growth forecast for 2022 from 4.0% to 3.6%, and set the growth rate forecast for the first quarter at 1%. $

Although the GDP forecast for the first quarter of 2022 currently does not seem very optimistic, it is completely inconsistent with the decline for two or more consecutive quarters that we have just mentioned. In addition, the average data of the 14 predictive indicators for the US economy by CNBC Rapid Update shows that the US GDP will grow by 3.8% this year, which is higher than the trend growth, because it is expected that the US will continue to recover after the impact of the epidemic has dissipated. But we cannot deny that the global economy is in a “free fall” due to the crisis in Ukraine.

Furthermore, according to data released by the US Department of Labor on the 4th of this month, the US unemployment rate fell to 3.8% in February this year, and the number of new jobs in the non-agricultural sector was 678,000, which was better than market expectations. Our US Stock Investment Network believes that as the epidemic improves and more people return to work, the recovery momentum of the US labor market remains strong, but recent geo-evidence issues such as the Russia-Ukraine conflict and the high inflation environment will still only pose a threat to the recovery of the US economy and labor market.

Currently, the price of crude oil has risen rapidly above 125 US dollars per barrel, the national average gasoline price is over 4 US dollars per gallon, and it is expected that energy prices and current food prices will also soar sharply. This is unspeakable for most people, so it is reasonable to cut some living expenses.

As for the Fed's interest rate reduction to try to stimulate economic growth, we have not seen such news at present. Most of them are predictions from some institutions. What we see is that the Fed is still full of ambition. Federal Reserve Chairman Powell supports a 25 basis point rate hike this month to begin a cycle of interest rate hikes, while at the same time being open to a larger rate hike in the event of excessive inflation. The market had previously predicted that the Fed would raise interest rates up to 7 times in 2022. However, during this crisis, the market drastically reduced the number of interest rate hikes.

However, when the oil price soars, the yield curve flattens, and the stock market pullback at the same time, people will feel more strongly that it is time to take the threat of a recession seriously.

To be sure, the market will always overreact. Currently, fear dominates investors' mentality. Asset prices exceed any price that has been justified by fundamentals, and the market is also facing multiple threats.

Neil Dutta, head of economics at Renaissance Macro Research, said that concerns about the oil crisis have been exaggerated. He believes that Americans now not only have a better financial situation and can bear high energy bills, but real interest rates are still negative, which leaves plenty of room for the central bank to raise interest rates without affecting the economy.

The war will bring stagnation in the economy. When the oil crisis broke out in 1973, only commodities outperformed inflation. Wall Street suffered a severe setback. The S&P 500 index fell to the bottom, and technology stocks, consumer stocks, bank stocks, and small-cap stocks plummeted. The stagnant rise seriously dragged down the US economy.

Now, the specter of stagflation is looming in the bond market. What is stagflation? Stagflation means that economic growth is slow, unemployment is high, and prices are rising (that is, inflation).

In summary, under the Russian-Ukrainian conflict, no country can stand alone, and the US is no exception. However, the current situation of the US as the hegemon of the global economy is not too bad compared to other countries, but history tells us that for long-term investors, this may be an appropriate buying opportunity. It's hard for us to get to the bottom, so we can open positions in batches. Sometimes the taste of missing out is worse than the taste of losing money.

Wealth is the easiest thing to lose in war. In this age of uncertainty, if we are unfortunately drawn into war, we can only say that losses are minimized. Although stock assets will plummet in a troubled world and are also very risky assets, compared to houses being bombed and bonds and cash depreciating sharply, it is likely that stocks will eventually rise back. So what we need most right now is to adjust our mindset and wait and see the changes.