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Economists have been weighing each twist and turn of the economy to determine whether we are going \\u201cup\\u201d or \\u201cdown.\\u201d Many are predicting a recession at some point, while a few say we\\u2019re already in a recession because the economy is contracting. But does this economy show the typical signs of a recession? One MarketWatch contributor doesn\\u2019t think so.

Hi, I\'m Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

As you may know, two quarters of negative economic growth are usually interpreted as a recession. We\\u2019ve already seen negative growth in the first quarter. The economy contracted at an annual rate of 1.6%. And now, there are analysts and GDP trackers that are predicting the second quarter will decline as well. The Q2 numbers won\\u2019t be out until the end of this month, but in the meantime, there are plenty of people looking at historical patterns to determine what might be happening, or not happening.

Economy Still Quite Healthy

MarketWatch contributor, Jeffrey Bartash, doesn\\u2019t believe the typical definition of a recession will hold true this time around. He says the report we see on the \\u201cgross domestic product\\u201d is often reduced to simple headlines that don\\u2019t tell the whole story, and that, right now, \\u201cmany parts of the U.S. economy still seem quite healthy.\\u201d (1)

For one, consumer spending and business investment both rose in the first quarter. Consumers are well employed with plenty of savings from the pandemic, while businesses are creating hundreds of thousands of jobs that they can\\u2019t fill because of a labor shortage. The unemployment rate is 3.6% which is close to a 54-year low. That makes layoffs less likely, even if the economy sputters in the months ahead.

Blame the International Trade Deficit

But the economy did decline in Q1. Bartash says it\\u2019s not because the economy is in bad shape. He says it\\u2019s because of a surge in the international trade deficit, and that happened because of supply chain issues. Many companies placed bigger orders for foreign goods to \\u201cstock up.\\u201d But the surge in goods coming into the country also made it look like our economy was slowing down.

There\\u2019s a group of eight economists at the National Bureau of Economic Research who study all the details of a potential recession. Bartash says they pay special attention to hiring, unemployment, manufacturing, consumer income, and consumer spending, adjusted for inflation. And he says none of those data points support the idea of a U.S. recession, right now.

NBER\\u2019s Definition of \\u201cRecession\\u201d

The NBER\\u2019s definition of a recession is a little different than two consecutive quarters of negative economic growth. It says a recession happens when there\\u2019s \\u201ca significant decline in economic activity that is spread across the economy and that lasts more than a few months.\\u201d It also says that a downturn has to be \\u201cdeep, broad, and long-lasting\\u201d before it\\u2019s considered a recession.

We still have about three weeks before the official report comes out on the second quarter GDP. As Bartash points out, a lot can change between now and then, and between now and next year. This is why some economists are predicting a potential downturn or recession in 2023. But most agree, an economic slowdown has already begun.

As Senior Wells Fargo Economist, Sam Bullard, told CNBC: \\u201cThere are certainly a lot of challenges ahead. The latest incoming data clearly signals there has been a loss of momentum.\\u201d

Economic Challenges Ahead

A few weeks ago, the Federal Reserve lowered its full-year GDP estimate to just 1.7% from 2.8%. Both those numbers are substantially lower than last year when the GDP was 5.7%. (2)

The central bank lowered its outlook after it announced the biggest rate hike in 28 years to help curb inflation. It raised the Federal Funds rate 75 basis points, and is now planning to do the same at its July meeting. Fed Chief Jerome Powell has emphasized the need to fight inflation. The Consumer Price Index hit 8.6% in May.

Higher interest rates will help slow the economy by making money more expensive. It\\u2019ll cost more for things like credit cards, car loans, business loans and adjustable rate mortgages. Fixed-rate mortgages are also impacted indirectly, and they\\u2019ve been shooting higher as well. The cost of a 30-year fixed rate mortgage has doubled since last fall from around 3% to around 6%.

Why Consumers Are Doing So Well

Economists feel that most consumers are doing well so far because unemployment is low and many are flush with savings. They didn\\u2019t spend as much on things like clothes, gas, travel, and entertainment during the pandemic.. MarketWatch says that consumers have more than $2 trillion in \\u201cexcess\\u201d savings. Many employees are also getting bigger paychecks because of the labor shortage and pay raises meant to keep them from leaving. All that helps offset higher prices.

According to the MarketWatch assessment, a lot depends on how much the Fed has to raise rates before we see inflation ease up. Some say we need to see improvement by the end of this year, and with short-term rates that don\\u2019t go any higher than 4%. Other variables, of course, involve the war in Ukraine and the price of oil and grain that come from that region. And the supply chain squeeze that began during the pandemic and hasn\\u2019t resolved.

Avoiding Recession with a Bit of Good Luck!

Higher interest rates that slow the economy could help producers catch up. But when it comes down to what makes or breaks the economy, it could be that we need a little bit of luck for things that are not in our control outside the U.S. Economist Oren Klachkin of Oxford Economics told MarketWatch: \\u201cThe window for avoiding a recession is narrower today, but a downturn isn\\u2019t unavoidable.\\u201d

If you\\u2019d like to hear more about how the economy is impacting real estate and the housing market, I go into more detail on that topic in a recent webinar. It\\u2019s my Housing Market Update for Q2. You can listen to the replay for free at newsforinvestors.com. You\\u2019ll find it under the \\u201cLearn\\u201d tab.

And please remember to hit the subscribe button, and leave a review!

Thanks for listening. I\'m Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/the-u-s-wont-officially-be-in-recession-if-gdp-shrinks-again-and-heres-why-11657047088

2 -https://www.marketwatch.com/story/the-odds-of-recession-are-rising-but-the-u-s-economy-is-not-doomed-to-a-downturn-11655479959