You might have heard that a recession is when gross domestic product (GDP) falls for two quarters in a row. And today, the Bureau of Economic Analysis reported that second quarter GDP fell 0.9%, after it fell 1.6% in the first quarter of the year. In case you're unsure, GDP is a fancy way of saying "the value of goods and services a country produces." So when we talk about the economy growing or shrinking, we are usually referencing GDP.
With two quarters of negative economic growth, we have to be in a recession right?
Eh, not exactly. While looking at GDP is a useful way of thinking about the economy, it's not the only piece of economic data that economists analyze. And while people have generally defined a recession as two quarters of declining GDP, there can be more to a recession than that.
Recessions are called when experts over at the National Bureau of Economic Research (NBER) say we are in a recession, and they don't just look at GDP. They also consider factors like employment, and income. Currently, unemployment is very low, and wages have gone up. Although rising inflation is making everything more expensive and forcing the Federal Reserve to slow economic growth down, people are still spending.
That's not to say we aren't in a recession right now. But with the labor market going strong and consumers still spending money, it's unlikely. At least, for now. And the only way we'll know for sure is when the NBER tells us so.
Instead of focusing on whether we are in a recession or not, I suggest focusing instead on preparing to weather the storm that a recession could bring. Increase emergency savings, pay down debt, and don't make any big purchases that you aren't confident that you'll be able to pay for later. But most of all, don't panic. Recessions don't last forever, and you can always count on us to help you get through any tough financial times the future might bring.
- Kristin
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