Is The U.S. In A Recession? Decoding Economic Jargon

If you've been hearing the word "recession" a lot lately and are scratching your head, wondering what it means for you and the economy, you're not alone. In essence, a recession is like a financial flu for the country. Just like when you're sick and can't work as well, a recession means the country's economic engine isn't running smoothly. But defining a recession isn't that straightforward, so is the U.S. in a recession? I've been covering the topic because it's top of mind for those who are concerned about the short to mid-term economic future.

The Two-Quarters Rule: Is It Enough?

A popular way to diagnose this "economic flu" is to look at the Gross Domestic Product, or GDP. Imagine GDP as the country's yearly "report card" on how much it produced and sold. The rule of thumb is that if this report card shows negative grades for two quarters (6 months), we're in a recession. 

Let's take a closer description of what GDP is:

Gross Domestic Product (GDP) is a measure of the total value of all goods and services produced in a country during a specific period, usually a year. Imagine you and your friends decide to have a lemonade stand. You buy lemons, sugar, and cups, and then make and sell lemonade to people passing by. The money you earn from selling lemonade is the revenue or income generated. GDP is like adding up the income from all the lemonade stands in your country. GDP includes not only the money earned from selling goods like food, clothes, and cars, but also income from services like education, healthcare, transportation, and banking.

Just like you and your friends buy materials, businesses in a country also purchase items to produce goods or provide services. The money spent on these materials is called investment.

GDP also considers the money spent by the government on things like infrastructure, schools, and defense.

GDP is a way to measure how well the economy of a country is doing. It helps us understand if the country is producing more or less than before, and if people have more or less money to spend.

A high GDP usually means a strong economy, while a low GDP might indicate a struggling economy. It is an important number that economists and policymakers use to make decisions about the country's financial health and plan for the future. Take a look at countries around the world and you can make an educated guess as to which ones have high GDP and which ones have low GDP.

However, this rule is like a weather forecast that only looks at temperature. Sure, it's cold, but what about the wind, humidity, and snow? Similarly, other factors like jobs and consumer spending can be just as important but might not show up in the GDP.

The NBER's Comprehensive View

The National Bureau of Economic Research (NBER) is like the family doctor for the U.S. economy. Instead of just looking at one test result (GDP), they examine various "symptoms" like job rates, income, and industrial production. According to NBER, a recession is when there's a significant decline in economic activity for more than a few months.

In 2020, the U.S. had a two-month-long recession, making it the shortest on record. Imagine this as a severe but brief flu because of the pandemic, which was bad enough to be classified as a recession.

The Current Economic Landscape: Are We in the Clear?

As of 2023, the report card (GDP) shows some promising grades. There's been growth, but it's like recovering from the flu and still feeling a bit weak. The economy still has some lingering issues—think of these as the economic version of a runny nose and a cough. We're talking about inflation, labor shortages, and supply chain hiccups.

So, is the U.S. in a recession now? According to the data and the "family doctor" (NBER), the answer is no. But economic health, like our health, can be fragile. Various factors could tip the scales, so it's crucial to keep an eye on those economic "symptoms."

Hard And Soft Landing

A soft landing and a hard landing are two contrasting scenarios that describe the impact and severity of an economic downturn.

1. Soft Landing: A soft landing refers to a situation where an economy experiences a controlled and gradual decline in its growth rate, eventually settling into a period of stable or slightly slower growth. In this scenario, the recession is mild and manageable, with the negative effects being mitigated by proactive economic policies or market adjustments. A soft landing strategy is often implemented to avoid the more severe consequences of a recession, such as widespread job losses, bankruptcies, and significant drops in consumer spending. The goal of a soft landing is to achieve a smooth transition from a period of rapid expansion to a sustainable and stable growth trajectory.

2. Hard Landing: A hard landing, on the other hand, describes a more abrupt and severe economic downturn. In this scenario, the decline in economic growth is sudden and harsh, often accompanied by a significant contraction in various sectors of the economy. A hard landing can be triggered by various factors such as excessive debt, asset bubbles, financial crises, or external shocks. During a hard landing, businesses struggle to stay afloat, unemployment rises rapidly, consumer confidence diminishes, and overall economic activity experiences a steep decline. Recovering from a hard landing can be challenging and may require substantial intervention from policymakers and monetary authorities to stimulate growth and restore stability. The distinction between a soft landing and a hard landing lies in the severity, duration, and overall impact of the economic downturn. While a soft landing aims to minimize the negative consequences of a recession and facilitate a stable recovery, a hard landing reflects a more severe economic shock with potentially long-lasting effects on the economy and its participants.

Final Thoughts: Is The U.S. In A Recession?

Understanding whether we're in a recession is like piecing together a puzzle. You can't just look at one piece and see the whole picture. By keeping an eye on various indicators and listening to different "doctors," you can get a clearer view of the economy's health. And as with many things in life, knowledge is power—especially when it comes to your investments and financial decisions.

So, no, as of September 2023, the U.S. is not in a recession. But keeping yourself educated about what's happening can help you navigate any economic waters—calm or choppy.