Yes, 2 straight quarters of negative GDP (Gross Domestic Product) is and always will be the definition of a Recession. We have just recorded that in the U.S for the first half of 2022, period.
What is worse than inflation, STAGFLATION. Stagflation is the product of Recession + Inflation. We have stagflation in the U.S. now. Unfortunately, inflation was caused by excessive government spending. The U.S economy was literally flooded with money in 2021. Think about it, the government handed out stimulus checks which made many feel great, Like with a sugar high, it doesn’t last and the crash is bad. In this case, we are stuck with massive price increases that may never go away. The stimulus money is long gone and far outweighed by the new much higher prices we are paying for almost everything.
If the money supply were left alone, the economy would slowly get back to where it was prior to the handouts.
Now we find out that Congress has passed two new spending bills that will flood the economy with approximately $800 billion more dollars. This is the worst move they could make to curb inflation (Actually, Congress wanted a much larger bill passed that wasn’t).
Inflation is here to stay.
The economy slowing down may curb some prices (lower demand=lower prices) and be reflected in the GDP. Gas purchases at the pump, for example, are down a whopping 8% from a year ago. A bad sign for the economy. Walmart profit outlook was just reported to be way down, not good. New mortgage applications at decade lows. Personal savings rates are way down (lowest since the 2008 Great Recession) while credit card debt is ballooning (the average unpaid monthly balance is $5,200). More bad news.
It’s been reported that 900,000 new jobs have been created. That’s very misleading as they are really people just getting back to work post shutdowns. Sadly. there are fewer Americans working today than in 2019.
The new bill just passed by Congress also includes tax increases for corporations which is a big negative for corporate earnings going forward. I’d rather see taxes reduced to encourage corporate growth and new jobs, which leads to economic growth to a larger tax base.
I know this sounds pretty glum.
I don’t have a lot to be optimistic about right now regarding the U.S. economy. The good news is that our nation survived stagflation in the 1970’s and we will again, but it will take completely different economic policies to be enacted.
I like investments that do well during inflationary times (Real Estate & Commodities and some Stocks). I’ll be watching the Federal Reserve regarding interest rates. They’ve been raising rates in 2022 to try and slow inflation, but higher rates will lead to more expensive loans and slow the economic growth even further.
Hang in there, “this too will pass”.
Focus on what you can control and that includes your personal financial planning.
Let me know if you would like to set up a time to talk.
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