7 possible sings Recession May Be coming – eskyhelp
before we begin looking at the possibilities of a recession happening we should familiarize ourselves with the factors that cause a recession and what previous recessions looked like over the years the united states has experienced a number of recessions and over the last two decades alone there have been several recessions some
of which were more catastrophic than
others in 2020 the covid19 epidemic triggered a short-lived recession marking the end of
the longest stretch of economic prosperity in american history although the economic downturn only
lasted a quarter the national bureau of economic research did not hesitate to call it a recession unemployment rose firms and whole industries were forced to shut down by the government citizens were put on lockdown retail sales plunged the stock market sank and so on the 2020 recession was the worst in modern u.s history said many people
it wreaked such havoc in such a short period of time in 2007-2009 america experienced the great recession the recession of 2007-2009 was the greatest economic slump in the united states since the great depression of the 1930s low mortgage interest rates intended to
encourage home ownership caused a housing bubble or excessive seller’s market in the mid 2000s when the housing bubble burst many people defaulted on their loans resulting in a recession and countrywide financial crisis the economy shrank by 4.3 percent while unemployment reached 10 percent in 2001 the new century brought a wave of uncertainty for many americans and corporations dot com businesses had previously risen and then crashed a scenario made worse by the y2k scare which caused widespread concern about how technology would transition from 1999 to 2000.
the terrorist events of september 11 2001 sparked global concern causing initial shocks in the stock market and reverberating across essential businesses such as aviation and insurance nevertheless the 2001 recession was moderate compared to the recessions of 2020 and 2007 to 2009 with unemployment peaking at 6.3 and gdp falling for only three quarters with a cumulative decrease of less than one percent so after that brief history lesson let’s
look at what causes a recession and the
signs we should look for
1. reduction in gdp
a decline in gdp growth is sometimes cited as a cause of recession but it’s more of an indication that one is already happening this is because economic statistics are only reported after a quarter has ended the recession will have been ongoing for at least a few months by the time the gdp number is adjusted look at this the commerce department said that gross domestic product fell by 1.4 on an annualized basis in the first quarter indicating a sharp reverse for an economy that had just had its strongest growth since 1984.
2. high interest rates
when interest rates rise liquidity money available to invest reduces in an economy in the past the federal reserve has been the main perpetrator the federal reserve has frequently raised interest rates to safeguard the dollar’s value for example it did so in the late 1970s to combat stagflation which led to the 1980 recession and now the fed raised interest rates for the first time since 2018 as it grapples with the strongest inflation in 40 years higher borrowing costs
reduced lending and spending in the economy analysts expect the fed to continue hiking interest rates relatively aggressively in 2022 and 2023 and many forecasts that the fed will raise the federal funds target rate to a peak of about three percent by the end of 2023 deutsche bank has predicted that the federal reserve will plunge the us economy into a major recession before the end of 2023 by hiking interest rates to between five percent and six percent
3. A stock market crash
An abrupt drop in investor confidence can trigger a bear market draining money from businesses but according to forbes advisor following a bleak january and february march brought sweet respite to stock market investors in the united states the s p 500 gained 3.6 percent in the month indicating some rebound from the previous two months painful correction which saw stocks drop as much as 13 from all-time highs all major market benchmarks had their biggest quarterly losses in two years in the first quarter of 2022 with the s p 500 losing 2.8 percent and the nasdaq composite dropping 3.95
4. controls on wage and prices
wage and price restrictions have been imposed several times throughout history but only once has it resulted in a recession for example in 1971 president richard nixon froze wages and prices to prevent inflation but businesses were forced to lay off workers since they couldn’t lower their pay because families earnings were reduced demand declined companies could not lower prices so they lay off even more people resulting in the 1973 recession according to cnn business bank of america has issued a warning that excessive inflation poses a genuine danger to the economy’s recovery which began only two years ago the warning came as fresh government data released on tuesday revealed that consumer prices rose by 8.5 percent in march the biggest rate since december 1981. everything from new cars to men’s clothes to baby food and salad dressing saw record price increases year over year
5. housing prices and sales are declining
when homeowners lose equity and cannot get a second mortgage they may be obliged to cut back on their expenditures this was the first event that precipitated the great recession of 2008. banks finally lost money on intricate deals based on declining property values the housing market has taken off this year with home prices continuing to increase amid rising inflation and continued supply chain concerns still some analysts believe that prices will soon level out as mortgage rates rise and demand declines long-term interest rates have risen with the 10-year treasury note approaching
3 percent as the federal reserve prepares to cut its portfolio of about 5 trillion dollars in treasury and mortgage-backed securities next month fixed mortgage rates have risen to about five percent in recent months as a result of the federal reserve’s aggressive monetary tightening which moody’s analytics chief economist mark sandy believes would exert
a strong gravitational pull on house sales he said more mortgage rates will conflate with extraordinarily high house prices making home ownership unattainable for most americans he continues noting that today’s average monthly mortgage payment of seventeen hundred dollars is about five hundred dollars higher than last year and more than double what it was a decade ago according to sandy existing
homeowners will be hesitant to sell and take on mortgage rates of five percent or higher after having record low mortgage rates during the epidemic while house prices are increasing fast in the short term due to limited inventories and historically strong inflation this will reverse as more purchasers are priced out of the market and the rising mortgage rates curb price growth in the second half of 2022
6. demand versus supply
In the early stages of recession loan demand might be a casualty companies cancel growth plans that would have been financed with borrowings if the economy had been more robust as a result concerned consumers began to spend less and save more as layoffs spread in a financial crisis
lenders may also pull back putting the economy at risk of a credit crunch thus compelling a central bank with authority to address such systemic dangers to interfere in a recession interest rates decrease even if there’s no credit bottleneck because the downturn reduces loan demand while increasing the savings availability
7. A pandemic
the world economy has been impacted by covid 19. it compelled industrialized countries to shut down their entire economy resulting in one of the worst recessions in history consumers were still hesitant to return to restaurants theaters and other outlets when the economy reopened because they were afraid as a result of the employment losses
people were unwilling to spend resulting in a lengthy recession the covid 19 pandemic now in its third year has tremendously impacted the us in global economies the us government responded to the crisis when it enacted a number of policies to provide fiscal stimulus to the economy and relief to those affected by this global disaster for example the federal reserve also took a series of substantial monetary stimulus measures to complement the fiscal stimulus the amount of funds used in all of these initiatives to handle the impact caused by
the pandemic according to data collected by usa spending sums up to 11 trillion dollars well there you have it a few signs you should look out for for a possible upcoming recession hopefully if you can see it coming you can also plan for it with that said have an awesome day and i’ll see you in the next one