According to a traditional definition, the U.S. is currently in a recession. However, there is more to the story.
It may not be "official," but according to a traditional definition, the U.S. is currently in a recession. However, as with many things in our post-pandemic world, there is more to the story.
The conventional benchmark has been that two consecutive quarters of a generally slowing economy defines a recession. The Bureau of Economic Analysis, an agency embedded in the U.S. Department of Commerce, said that as of July 28, 2022, just such an economic pullback occurred in the first and second quarters of this year.
But with an economy maintaining strong employment and resilient corporate and personal spending, there is room for debate.
The nonprofit National Bureau of Economic Research, a group of academics and economists across the nation, is tasked with declaring when recessions occur. The NBER hasn't rung the recession bell because economic data is a rearview mirror thing. It's common for the group to wait months before announcing that a recession has occurred.
So, a short recession could be over before it's officially declared.
A slowing economy is just what the Fed ordered
However, consumers feeling the pinch of higher prices and worrying about the impact of a slowing economy may already be feeling some of the worst of what the 2022 economy has to offer.
We have to pay through the pain to get to the other side.
The Federal Reserve, after issuing four interest rate increases this year, is not trying to trigger a recession — but does want to slow the economy. Lowering consumer demand is the tricky elixir intended to reverse the higher prices we face with inflation. The risk of a recession is always a possible side effect.
How long do recessions last?
Historically, recessions have lasted anywhere from two months to several years, according to the NBER. But our current economic climate presents unique circumstances that make it difficult to draw a direct comparison with past events.
The lingering effects of the pandemic, particularly in matters of inventory and supply chain disruptions, are major wild cards. Unemployment is still low, but we hear more talk of layoffs and business expense cutting each week. The war in Ukraine is another concern.
Economic cycles are impossible to predict, so it's best to be financially prepared.
Getting ready for a recession
There are a few ways to deal with current economic challenges and prepare for future ones. Starting or beefing up an emergency fund can help you face financial setbacks without going into debt.
Now may also be the appropriate time to look closely at your expenses, adjust your spending and explore resources to get help paying bills.
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