Is the economy in recession? The best economists intervene

“We should have an objective definition”

Officially, the NBER defines a recession as “a significant decline in economic activity that extends throughout the economy and lasts for more than a few months.” In fact, the latest quarterly gross domestic product report, which tracks the overall health of the economy, showed a second straight contraction this year.

Still, if the NBER does eventually declare a recession, it could take months, and it will also take into account other considerations, such as employment and personal income.

What really matters is that their paychecks don’t go that far.

Thomas Philipson

former acting chairman of the White House Council of Economic Advisers

That puts the country in a gray area, Philipson said.

“Why do we let a university group decide? ” he said. “We should have an objective definition, not the opinion of an academic committee.”

Consumers are behaving like we’re in a recession

For now, consumers should focus on energy price shocks and headline inflation, Philipson added. “It impacts everyday Americans.”

To that end, the Federal Reserve is taking aggressive steps to temper soaring inflation, but “it will take some time to work its way up,” he said.

“Powell is raising the federal funds rate, and he’s allowing himself to raise it again in September,” said Diana Furchtgott-Roth, a professor of economics at George Washington University and former chief economist at the Department of Labor. “He says all the right things.”

However, consumers are “paying more for gas and food, so they have to cut other expenses,” Furchtgott-Roth said.

“The negative news continues to pile up,” she added. “We are definitely in a recession.”

The sequel: “The path to a soft landing”

The direction of the labor market will be key in determining the future state of the economy, the two experts said.

Consumption cuts come first, Philipson noted. “If companies can’t sell as much as they used to because consumers aren’t buying as much, then they’re laying off workers.”

On the positive side, “we have twice as many vacancies as unemployed, so employers won’t be so quick to lay off,” according to Furchtgott-Roth.

“It’s the path to a soft landing,” she said.

3 ways to prepare your finances for a recession

As the impact of record high inflation is felt across the board, every household will experience a setback to a different degree, depending on their income, savings and job security.

Still, there are several ways to prepare for a recession that are universal, according to Larry Harris, Fred V. Keenan Professor of Finance at the University of Southern California’s Marshall School of Business and former chief economist at the Securities and Exchange Commission. .

Here is his advice:

  1. Streamline your expenses. “If they expect to be forced to cut spending, the sooner they do it, the better off they’ll be,” Harris said. This may mean cutting back on a few expenses now that you really want and don’t need, like subscription services you signed up for during the Covid pandemic. If you don’t use it, lose it.
  2. Avoid variable rate debt. Most credit cards have a variable annual percentage rate, which means there is a direct link to the Fed’s benchmark, so anyone with a balance will see their interest charges increase to every Fed move. Homeowners with variable rate mortgages or home equity lines of credit, which are indexed to the prime rate, will also be affected.

    This makes it a particularly good time to identify outstanding loans and see if refinancing makes sense. “If there’s an opportunity to refinance at a fixed rate, do it now before rates rise further,” Harris said.

  3. Consider putting money aside in Series I bonds. These federally-backed inflation-protected assets are nearly risk-free and pay an annual rate of 9.62% through October, the highest yield on record.

    While there are purchase limits and you can’t mine the money for at least a year, you’ll get a much better return than a one-year savings account or certificate of deposit, which pays less than 2%. (Rates on online savings accounts, money market accounts, and certificates of deposit are all set to rise, but it will be some time before those returns rival inflation.)

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