Retirement Tip of the Month
Recession Now Pushed to 2024?
A recession is a significant and prolonged decline in economic activity within a country or region. It is typically characterized by a decrease in various economic indicators, including a contraction in gross domestic product, reduced consumer spending, rising unemployment rates, and decreased business investment. Recessions can have various causes, including financial crises, changes in consumer behavior, external shocks (such as natural disasters or geopolitical events), or a combination of these factors.
Investors, economic experts, and the Federal Reserve have been warning for the past several months that a recession might be on the way. The Treasury market first began predicting that a U.S. recession lurks on the horizon almost a year ago, during October of 2022. This happened when the Fed started its aggressive interest rate hikes to counteract inflation. Although it was thought to be an inevitability for 2023, the U.S. economy has so far avoided it. The economy has proved itself more resilient than expected, and the case for a 2023 recession has since been crumbling.
But, just because we’ve pushed it down further doesn’t mean it’s not coming: Many economists still think a downturn is likely on the horizon, and have simply adjusted their predictions for a later date. Many experts are now saying it could arrive next year, during the summer of 2024.
There’s a reason it’s so hard to pinpoint when a recession will happen: there’s a lag, you see, between the Fed’s rate hikes and when they start to actually impact the economy. According to Fed Chair Jerome Powell, the Fed’s recent rate hikes will take “a year and change” to begin affecting the ability. It’s been over a year since the Fed began its rate-hiking cycle, which means they could fully take hold pretty soon.
How Likely Is a Recession?
What does the yield curve tell us about the possibility of a recession? Proven in the past to be a reliable indicator of a recession, an inverted yield curve shows that long-term interest rates are less than short-term interest rates. Based on data acquired from the 1960s all the way to today, a recession takes, on average, around 589 days to materialize following the 10-year and 3-month yield curve first inverted. It is tempting to dismiss the yield curve in this cycle, but history has shown us that recessions haven’t been quick to arrive after the yield curve first inverts.
Meanwhile, what do experts* say about the possibility of a recession happening in 2024? 78% of experts indicated that the chance of an upcoming recession was greater than 50%, and from there, 28% said the odds were 70% or higher. This shows probable odds that an economic environment featuring job losses and slower business growth could be on the horizon. Goldman Sachs economists, meanwhile, predicted the odds of a recession in the next 12 months at just 15%, meaning that to them, there isn’t a pressing danger of one.
However, economists were at least mostly in agreement that the projected recession is unlikely to be as severe as the downturn that came with the pandemic: That drop pushed unemployment up to double-digit levels.
The Federal Reserve’s Beige Book report on Wednesday, September 6th, showed that the economy grew modestly during July and August, likely bolstered by the last stage of pent-up demand for leisure activities.
A Recession is Still a Risk
Recessions are an accepted and inevitable occurrence in the business cycle. And, few downturns were as easy to predict as the one that came in the aftermath of the pandemic. Now, the Federal Reserve is raising interest rates to a level not matched since 2007, and, to boot, at a pace not seen since the 1980s. The Fed has never been able to raise interest rates this far and fast without prompting an economic downturn. And historically, the Fed has never been able to cool down excess inflation without resulting in a recession. But, to the surprise of most economic experts, this downturn still hasn’t yet shown up. Several factors have delayed the onset of a recession this year:
- The Social Security cost-of-living adjustment in January
- The loosening of financial conditions in stocks and bank liquidity after the March banking crisis
- The residual resilience of the labor market
- The restarting of China’s economy
We could, however, still very much be on the path toward a downturn in the U.S. economy some time next year. For sure, the economy has since slowed after its grand reopening following the pandemic and its resulting lockdowns. Banks have tightened lending standards as a result of the three major bank failures earlier this year. But, consumers have continued spending, and the labor market is still chugging along.
We Can Help
In today’s economy, concerns about a recession remain on the minds of many. And while we can’t predict the future, we can do certain things to prepare for it. Are you worried about all this talk about an economic downturn on the way? Don’t worry: We can help. There are ways for you to safeguard your financial future. Your financial goals are unique, and your strategy should be, too. The recommendations we make are tailored to your specific needs: You need to have a solid financial strategy in place. You want to be protected no matter what happens in the economy in the years to come.
We can help you understand your risk tolerance and implement strategies to hopefully minimize losses. DPG Senior Signature Solutions is here to help you get informed, in order to make the right decisions and protect your wealth. Reach out to us today to attend an educational seminar or book a no-obligation, one-on-one meeting and review with us. We may be able to help you create a financial strategy that offers you confidence, even in uncertain times like these. We’re always here to help.