It is tempting to say that the U.S. is on the verge of a recession USA, or already another.
At least what some economists had in Thursday’s GDP report, which showed that the US economy was down by a one-year adjustment rate of 1.4% in the first quarter of 2022.
This study comes as inflation has risen by 40 years, forcing Americans to cut spending to stay active. Yet unemployment is significantly lower. The sharp decline in exports caused by supply chain problems contributed significantly to GDP in the last quarter.
And a quarterly summary does not necessarily mean that recession is on its way.
What does a recession mean?
An economic downturn means a sharp decline in economic activity.
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There is an illogical explanation that two consecutive quarters of negative GDP mean the economy is in crisis. But the National Bureau of Economic Research, which gives an official decision on when and how the economic downturn in the US began and ended, says that the sharp decline in economic activity will not be determined by GDP alone.
In general, the sharp decline in economic activity is due to a number of factors, including high unemployment, declining productivity and sales, and wages falling beyond the negative GDP reading, according to the NBER.
What happened during the recession USA?
During the recession, many people often lose their jobs. Until they can find a new job, they often have to reduce their expenses or take on additional debt to cover their expenses.
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For example, during the economic crisis caused by COVID-19, an estimated 23 million Americans were laid off. This happened when businesses were forced to close to stop the spread of the virus, and without customers, employers could not afford to pay all their employees.
How long does the recession take?
There has been 12 recession since World War II which lasted 10.3 months on average.
But there is more. The most recent recession was the shortest ever in just two months, from February to April 2020. The previous recession also called the Great Recession, lasted 18 months.
Is the recession in the USA coming in 2022?
There is little chance of a recession this year, economists say. But if that doesn’t happen it doesn’t mean it’s out of the cards.
Economists from Deutsche Bank predict that “we will experience a sharp recession” from the end of 2023 or early 2024. That marks a change in tone since last month when economists predicted a “slight recession.” They said in a paper published Tuesday that the recession could be very important as it will “take a long time” before inflation returns to the Fed’s target of 2%.
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That means the central bank will have to take even more drastic measures; to raise interest rates in order to contribute to inflation. But rising prices can cause damage because they can cause consumers; and businesses to spend less as they are more expensive to borrow when interest rates; credit cards and other debt increase accordingly.
However, PNC chief economist Gus Faucher said; “The US economy is nowhere near a recession” in a book published after a GDP report on Thursday. “Basic demand remains strong, and the labour market is in excellent shape. Growth will continue in the second quarter.”