The National Bureau of Economic Research (NBER) officially determines whether the U.S. economy is in a recession. The organization’s definition of a recession is “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.” This can be determined only by looking back at economic activity in recent history, not beforehand.
A number of economists believe the recession will begin in 2023. Other experts claim the recession has already started. A compromise, based on current consumer confidence and roaring inflation, is that a recession will begin by year’s end, or 183 days from July 1.
The start of a recession is almost guaranteed now, even if inflation is the sole cause. With the consumer price index increasing each month by over 8% compared with the same month a year ago, very few Americans will have income increases to keep pace. That means consumer spending will be undermined. This spending is over two-thirds of gross domestic product.
Corporations face similar hurdles. Inflation and consumer confidence will reduce profits for many. This already has started, based on company forecasts about performance in future quarters.
Many middle-class Americans have seen a sharp increase in their net worth. This was triggered by a sharply rising stock market and an unprecedented increase in the price of homes. Now, the stock market is off by 20% and continues to fall. There are signs that rising mortgage interest rates have begun to cool the housing market.
Will the recession start this year or next? One way to forecast this is to split the difference. This means the last day of the year and the day before the start of the next.
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