Will the USA experience an economic recession? 6 major characteristics and signals.

What is economics? What are the four stages of the economic cycle? What is an economic recession? Is the USA currently in an economic recession? Should we be bottom fishing?

There is no universally agreed definition of a recession. The most common definition is that a recession occurs only when the Gross Domestic Product (GDP) of the United States declines for two consecutive quarters or more (six months or more).

What are the economic characteristics during a recession?

1. GDP decline.

2. Economic activities become unstable, companies cut expenses to survive.

3. Companies start layoffs when cutting expenses, leading to an increase in the unemployment rate. Those who are employed may worry about losing their jobs, resulting in reduced consumer spending.

4. Governments increase debt to stabilize the economy.

5. The Federal Reserve lowers interest rates to try to stimulate economic growth.

Stocks and other assets (such as houses) are depreciating, indicating a comprehensive financial crisis is occurring.

If we want to know whether the U.S. economy is currently in recession, we just need to look at the data to see if it meets the six points we just mentioned or partially meets them to find the answer.

GDP is a key economic indicator that can let economists and the general public know if the country is developing in the right direction.

In 2020, when the pandemic broke out, the Gross Domestic Product (GDP) of the USA was close to $22 trillion. The pandemic led to the U.S. GDP falling below $19.5 trillion for the first time since 2017. But starting from the second quarter of the first year of the pandemic outbreak, the economy began to accelerate. In 2021, the U.S. GDP grew by 6.9%, surpassing the widely expected 5.5%. The USA recorded its strongest quarterly growth of 2021 in the fourth quarter with an annualized rate revision to 7.0%, in line with expectations.

On March 1, 2022, the U.S. Atlanta Fed officially released data showing a significant downward revision of the first quarter GDP forecast from 1.7% and 0.6% on February 25 to 0.0%.

At the same time, Bank of America also reduced its 2022 U.S. Gross Domestic Product (GDP) growth estimate from 4.0% to 3.6% and set the first quarter growth rate expectation at 1%.

Although the forecasted data for the first quarter of 2022 does not look optimistic at the moment, it does not completely align with the previously mentioned requirement of consecutive declines in two or more quarters. In addition, the CNBC Rapid Update on the average data of 14 forecast indicators for the U.S. economy suggests a 3.8% GDP growth this year, above the trend growth because it is expected that the U.S. economy will continue to recover after the impact of the pandemic fades away. However, we cannot deny that the global economy is in a 'free fall' state due to the Ukraine crisis.

Furthermore, data released by the U.S. Department of Labor on the 4th of this month showed that in February of this year, the U.S. unemployment rate dropped to 3.8%, with the non-farm payrolls adding 0.678 million new jobs, surpassing market expectations. We, at the U.S. Stock Investment Network, believe that with the improvement in the pandemic situation and more people returning to work, the U.S. labor market recovery momentum remains strong. However, recent geopolitical issues such as the Russia-Ukraine conflict and the high inflation environment will still pose threats to the recovery of the U.S. economy and labor market.

Currently, the price of crude oil has rapidly risen to above $125 per barrel, the average gasoline price in the United States exceeds $4 per gallon, and it is expected that energy prices and current food prices may also increase significantly, which is unbearable for most people, so it is reasonable to cut back on some living expenses.

As for the Federal Reserve's attempt to lower interest rates to stimulate economic growth, we have not seen such news at the moment, most of it is predictions from some institutions. What we see is that the Federal Reserve still has full confidence, Fed Chairman Powell supports a 25 basis point rate hike this month to begin the hiking cycle, and is open to raising rates to a greater extent in case of overheating inflation. Market expectations previously forecasted that the Fed would raise rates up to 7 times in 2022, however, during this crisis, the market has significantly reduced the number of rate hikes.

However, when oil prices surge, the yield curve flattens, and the stock market experiences a correction simultaneously, people will more strongly believe that it is time to seriously consider the threat of an economic recession.

To be honest, the market always tends to overreact. Currently, panic has taken over investors' psyche, asset prices have exceeded any prices deemed reasonable by the fundamentals, and the market faces multiple threats.

Neil Dutta, Head of Economics at Renaissance Macro Research, stated that concerns about the oil crisis have been exaggerated. He believes that nowadays Americans not only have better financial conditions and can afford high energy bills, but real interest rates are still negative, leaving central banks with sufficient room to raise interest rates without affecting the economy.

Battles will bring about economic stagflation. In 1973, during the oil crisis, only commodities outperformed inflation. Wall Street suffered heavy losses, the S&P 500 index hit bottom, technology stocks, consumer stocks, bank stocks, and small-cap stocks plummeted, and stagflation severely dragged down the U.S. economy.

Currently, the specter of stagflation is emerging in the bond market. What is stagflation? Stagflation means slow economic growth, high unemployment rates, coupled with rising prices (i.e., inflation).

In summary, under the backdrop of the Russia-Ukraine conflict, no country can stand alone, and the United States is no exception. However, compared to other countries, the United States, as a global economic powerhouse, is not in too bad of a situation currently. History tells us that for long-term investors, this may be a suitable buying opportunity. It is difficult to buy at the absolute bottom, so it is advisable to build positions in batches, as sometimes the regret of missing out is more unbearable than the loss itself.

Wealth is the easiest thing to lose in war. In this era of uncertainty, if unfortunately involved in war, it can only be said to try to minimize losses. Although stock assets may plummet in turbulent times and pose high risks, compared to houses being bombed, bonds and cash depreciating significantly, stocks are likely to recover eventually. So what we need most now is to adjust our mentality and observe calmly.