Are We Really in a Recession? News or Noise for Your Money

Let the bickering begin! Release the hounds. Let the political scapegoating and arguments ring loud throughout MSNBC Fox News, and Bloomberg TV for the next four months into the mid-term elections. We are in a recession! Or we are not?

I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. And This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources, and ask, “Is it News or Noise?” for your money. This week we take on the stories of are we in a recession or not?

I’ve been managing money for other people for almost 30 years now. And the unofficial rule of thumb, and the one almost every historic data series I’ve ever seen uses, is that a recession starts after two consecutive quarters of economic contraction measured by a fall in real gross domestic product (GDP). GDP is defined as a broad measure of the price of goods and services. In the first quarter of the year, real GDP contracted at an annual rate of -1.6%, largely due to a wave of imports that came into the USA after being stuck offshore in the 4th quarter of 2021. Last week, the commerce department announced that real GDP shrank again by an annual rate of -0.9% in the second quarter.

And guess what? The TV airwaves exploded with controversy. “Not so fast,” The White House said. It immediately sent out its troops, including Janet Yellen, across national media outlets to proclaim, “no, we aren’t in a recession.” Disregard the man behind the curtain. The numbers are lying to you, they essentially said. Which, I must admit, does have a lot of truth to it. Why?

Officially, the National Bureau of Economic Research (NBER) defines when the US is in a recession. Who and what is the NBER? Well, its website reads as this, “It is a private, a non-profit, nonpartisan group of economists committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.” It’s headquarters? The bastion of non-partisan economic thinking? Cambridge, Mass. The home to none other than one of my alma maters? Harvard.

You can find a link to the history of the NBER in the description box below. It really is fascinating.

The NBER looks at real GDP but also at employment figures, personal income, industrial production, and other factors. It has a more nebulous definition of a recession than most people think, including myself, defining it as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

The Current democratic political “leadership” in Washington DC would prefer the public not think of a recession as purely two negative quarters of real GDP. Why? Because it sheds their agenda past, present, and future in a negative light. They would rather the public not think about a recession at all. Why? Because recessions have a negative connotation, they ruin investor and consumer sentiment, and they can become self-reinforcing to the downside. So, the current administration is stressing that the picture is more complicated. Which they are correct about!

Look at the jobs market. The unemployment rate is 3.6%, near a 50-year low. Wages are also improving, although lagging behind inflation, and 2.7 million people were hired so far this year. That data is hardly recessionary.
However, at the same time, consumer confidence has collapsed to new all-time lows. High inflation is hurting everyone except the uber-wealthy. The housing market is cooling fast, and stock markets have fallen into bear market territory. And yes, we just printed two consecutive quarters of negative Real GDP growth. And yes, if the Republicans were in power, Democrats would be calling two quarters of GDP decline a recession.

Are we in a recession? Strictly speaking, from everything I’ve ever been taught as a money manager. Yes, we technically have had one in the first half of the year. Is it news for your money? Certainly, it is? What might it mean going forward? Well for that, go to our Oak Harvest You tube channel and subscribe to our content. Check out our “Keeping you connected to your money” podcast video series. There we cover more in depth, the stock and bond markets, their moves, and what it might mean for your investments and retirement.

At Oak harvest, we think our clients are best served by us helping them plan for their future needs, instead of focusing on the past. The future is always uncertain and that’s why our advisors and retirement planning teams, plan for your retirement needs first, and your greed’s second.

Give us a call to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at (877) 896-0040, and schedule an advisor consultation. We are here to help you on your financial journey into and through your retirement years.

I’m Chris Perras and from everyone here at Oak Harvest Have a blessed week.

News or Noise: News!