Is the economy in recession? The best economists say

‘We should have an objective definition’

Officially, the NBER define a recession as “a significant decline in economic activity that spreads throughout the economy and lasts for more than a few months.” In fact, the latest quarterly gross domestic product report, which tracks the overall health of the economy, showed a second contraction in a row this year.

Still, if the NBER finally declares a recession, it could be months from now, and it will also take into account other considerations, such as employment and personal income.

What really matters is that your paychecks don’t go that far.

Thomas Philipson

former Acting Chairman of the White House Council of Economic Advisers

That puts the country in a gray area, Philipson said.

“Why do we let an academic group decide?” he said. “We should have an objective definition, not the opinion of an academic committee.”

Consumers are behaving as if we are in a recession

For now, consumers should focus on energy price shocks Y general inflationPhilipson added. “That’s affecting ordinary Americans.”

To that end, the Federal Reserve it is taking aggressive steps to temper rising inflation, but “it will take a while for it to work,” he said.

“Powell is raising the fed funds rate and opening up to raising it again in September,” said Diana Furchtgott-Roth, an economics professor at George Washington University and a former chief economist at the Labor Department. “He is saying all the right things.”

However, consumers “are paying more for gasoline and groceries, so they have to cut back on other expenses,” Furchtgott-Roth said.

“The negative news continues to pile up,” he added. “We are definitely in a recession.”

What comes next: ‘The road to a soft landing’

The direction of the labor market will be key in determining the future state of the economy, both experts said.

Consumption declines come first, Philipson noted. “If companies can’t sell as much as they used to because consumers aren’t buying as much, then they lay off workers.”

On the upside, “we have twice as many job openings as unemployed people, so employers won’t be rushing to lay people off,” according to Furchtgott-Roth.

“That’s the path to a soft landing,” he said.

3 ways to prepare your finances for a recession

While the impact of record inflation is being felt across the board, each household will experience a setback to a different degree, depending on their income, savings, and job security.

Still, there are some ways to prepare for a recession that are universal, according to Larry Harris, Fred V. Keenan Professor of Finance at the University of Southern California Marshall School of Business and former chief economist for the Securities and Exchange Commission.

Here is his advice:

  1. Optimize your expenses. “If they expect to be forced to cut back, the sooner they cut back, the better off they’ll be,” Harris said. That may mean cutting back on some expenses now that you just want and don’t really need, like the subscription services you signed up for during the Covid pandemic. If you don’t use it, you lose it.
  2. Avoid variable-rate debt. The majority Credit cards they have a variable annual percentage rate, which means there is a direct connection to the Fed’s benchmark, so anyone with a balance will see their interest charges increase with each move by the Fed. Homeowners with adjustable rate mortgages or home equity lines of creditthat are linked to the prime rate, will also be affected.

    That makes this a particularly good time to identify the loans you have outstanding and see if refinancing makes sense. “If there’s an opportunity to refinance to a fixed rate, do it now before rates go even higher,” Harris said.

  3. Consider putting away extra money in Series I bonds. These federally backed, inflation-protected assets are nearly risk-free and pay an annual rate of 9.62% until Octoberhighest performance on record.

    While there are purchase limits and you can’t use the money for at least a year, you’ll get a much better return than a one-year savings account or certificate of deposit, which pays less than 2%. (Rates on online savings accounts, money market accounts, and certificates of deposit are about to go up, but it will be a while before those yields compete with inflation.)

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