WHY A 2023 RECESSION HASN’T STARTED YET
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The conversation about recession is something that has been on for a long time. There is speculation that a recession might break out anytime. While some people do not even know if the recession has started already. Most of the conversations centered around whether there is an ongoing recession or not or whether there will be any shortly are mostly politically based.
The economists also when asked whether there will be a recession in 2023, are not sure. This does not mean that they are incompetent in their duties to effectively predict the economic future of the nation. The situation of the economy is one that is improving, but then no one knows what the future holds. Things might look a little better now, but there can be a turn of events in the near-future. Among all the speculations, there have been clear standings from some economists that although things might be hard economically in 2023, it might not lead to a recession.
As often as the word ‘recession’ is used by almost everyone, most cannot fully say they understand what the word means. It is a fact that no definition can totally cover what recession means. This is especially because economists themselves define a recession in different ways.
What then is a recession?
A recession is a downtown in economic activities that last for a few months. Another definition of a recession is that it is a period of economic decline that causes a reduction in trade and industrial activities which is indicated by a fall in Gross Domestic Product (GDP) for two consecutive quarters. Basically, a recession is a reduction in economic activities in the country caused by a lack of resources or a high inflation rate.
In an attempt to put inflation in check, the Federal Reserve often raises interest rates across all loan types like personal loans, mortgages, credit cards, etc. When the interest rate increases, people will be unable to take loans as freely as they used to, and this invariably leads to a reduction of economic activities in the country. In 2022 the Federal Reserve raised the interest rates seven times in an attempt to fight inflation.
During a recession, the unemployment rate increases due to a lack of new openings as industrial activities slow down. Many businesses go bankrupt and therefore lay off their staff, which adds to the number of unemployed people in the country. The unemployment rate causes a reduction in purchasing power. People will no longer have enough money to spend, so they will only spend on essentials, and the quantity of what they would purchase will be reduced drastically.
Because of this decline in consumer purchases, the price of goods will reduce, reducing the profit margin of manufacturers and causing them to fold up. Loss of homes due to many reasons also reflects a time of recession. Recession used to be a common phenomenon in the past. According to IMF, between 1960 and 2007, 122 recessions affected 21 advanced economies.
Many people might think there is a recession due to the perceived unfavorable economic situation, but a recession is not something that is declared based on feelings. Some metrics are used to show if a country has entered a recession or if the recession is at the door. Nick Bunker, an economic research director said in 2022, “I think if you look at all the data from the labor market, it does not suggest that we are currently in an economic downturn.”
It is worth noting that the US has not gone into recession. Although there have been speculations that a recession might happen in 2023, the US economy is still striving and striding against all odds to stay above recession.
These are some of the indicators that the 2023 recession has not started yet:
Unemployment Rate Decreased
One of the clearest indications of an economy that is going through a recession is the rapid increase in the unemployment rate. Many businesses will go bankrupt in this period causing a lot of people to become jobless. As more graduates enter the labor market, they join the laid-off workers to increase the number of unemployed people in the country. They will remain unemployed or underemployed for a long time.
This is not the case in the US. The unemployment rate has been reduced. The US job openings have gone higher. There are now about 1.7 openings for every unemployed person. Many industries are still hiring new workers. The unemployment rate has reduced from 3.6% in November to 3.5% in December 2022.
New jobs are being created, and more people are getting employed rather than staying unemployed. Although some industries like the tech industry are laying off some staff, globally, the unemployment rate in the country is reducing. This is because more individuals are taking up entrepreneurship as opposed to looking for corporate jobs. The labor force participation also experienced a level of increase towards the end of 2022.
Robust Growth in Payrolls
Another indication of an economy in recession is the decline in payrolls. Due to a lack of money and means for operation, most private businesses go bankrupt which leads to a reduction in the payrolls in the country.
However, the growth in the US payrolls was extraordinary in 2022. It improved so well that it got back to the pre-pandemic employment level in the summer of 2022. December proved to be a strong economic month in 2022 and this further strengthened the economic prowess to fight the recession in 2023. Based on the record, 223,000 jobs were added in December 2022. This is more than the 200,000 the economists predicted.
According to an analyst, he said “The reason we are not in a recession is that the labor market still is performing very well in the US economy. So, people are finding jobs, getting a paycheck, and spending it on goods and services.”
Personal Income has been Increasing
There has been an increase in the creation of more jobs in the last quarter. Personal income has experienced six months of continuous increase. This personal income does not include any payment from the government. People are beginning to explore other means of earning income which has led to an increase in the personal income generated in 2022.
The Economy Grew in the Last Quarter of 2022
One of the definitions of recession is that it is the decline in economic activities identified by a fall in GDP in two consecutive quarters. The US economy grew in the last two quarters of 2022. Inflation as defined by both CPI and Personal Consumption Expenditure Price Index reflects a reduction in the last two quarters of 2022. The calculation of the GDP for the last quarter of 2022 showed that the economy grew.
In 2022, the US experienced a two-quarters decline and two-quarters of growth. The calculation of the GDP showed that the economy grew by 2.9% in the last quarter of 2022, and 3.2% in the third quarter, and this resulted in an overall growth rate of 2.1% in 2022. This growth has pushed the recession far away as there were two consecutive quarters of growth.
Reduction in Inflation rate
The attempt of the Federal Reserve to fight inflation often promotes the relapse of the economy into recession. When interest rates are hiked, many other things follow which fuels the wheel of recession. However, the inflation rate has continued to reduce which is a great sign that the economy is walking toward recovery.
As of June 2022, inflation rises to about 9.11%. In November 2022, it was steadily reduced to 5.7%, and in December 2022, it dropped down to 5.6%. This might not look like too much, but it is a great indication that the economy is improving, and there might not be a relapse into recession anytime soon.
Personal Consumption Growth
Personal consumption grew in the early part of 2022, and although it reduced towards the end of the year, there is still no guarantee that this can lead to a recession. Obviously, it’s hard to see a recession because there is strong consumption and growth in income.
Although consumers did not spend as much in November and December 2022, there was still an increase in retail sales. Retail trade and food sales went higher by 6% in December 2022 which is higher than that of December 2021. The retail trade and food sales have remained steadily high since December 2022. This contributes to the strengthening of the economy.
Increase in Industrial Activity
Another metric that defines a recessive economy is the reduction in the production of basic and essential goods and a general reduction in production in the country. Industrial production increased by about 1.6% in December 2022.
An increase in the employment rate, industrial production, strong retail sales, and an increase in income levels are all indications that the recession has not started yet.