To recess or not to recess.
The question as to whether we are in a recession, like many things today seems to depend on what political party you belong to. Certainly, no incumbent politician wants a recession on their watch. On July 28th we received an advanced estimate showing the economy in contraction for the second consecutive quarter. The widely held view is a recession is called after 2 consecutive quarters of negative GDP growth, at least since Julius Shiskin, an economist in 1974 came up with this rule of thumb to simplify the definition. Admittingly, I applied his methodology myself over my career.
Keep it simple Julius!
For the record, I believe we may be in a mild recession. I was confused by the fact that a recession was called by some while we are experiencing such a strong labor market. Forbes online magazine set out to explain the factors involving the 13 recessions we had since the end of WWII, and I noticed an increase of unemployment each time. I thought it was time to redefine what a recession really meant until I found the true definition. According to Forbes, The National Bureau of Economic Research (NBER) is generally recognized as the authority that defines the starting and ending dates of U.S. recessions. NBER has its own definition of what constitutes a recession, namely “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” Since the labor market is so strong the recession debate will continue until which time the NBER settles the matter.
What does that mean for me?
Sergei Klebnikov, a staff writer for Forbes.com writes “The S&P 500 surprisingly rose an average of 1% during all recession periods since 1945. That’s because markets usually top out before the start of recessions and bottom out before their conclusion.
In other words, the worst is over for stocks before it’s over for the rest of the economy. In almost every case, the S&P 500 has bottomed out roughly four months before the end of a recession.”
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