Recession vs. Depression

by | Jun 15 at 9am | Investing | 0 comments

recession is defined as 2 consecutive quarters in which the GDP of a country declines. A depression is 4 consecutive quarters of declining GDP. Today, plenty of economists believe we are headed for recession either later in the year or in 2023. That’s a mistake, since in Q1 the US GDP fell by roughly 1.6%, and Q2 closed on June 30th (we’re still waiting on the data but it doesn’t look good), we can be almost certain that we are already in a recession. The question now becomes, is this just a recession that has already passed, or is this going to extend into a yearlong depression.

There are good cases to be made for both outcomes and there’s nobody on Earth who can accurately predict one way or the other. In fact, most economists were absolutely certain that our GDP wouldn’t fall in Q1 or Q2 of this year.

The positive outlook for the remainder of the year is that gas prices are now moving back downward, housing prices are about to fall considerably due to rising mortgage rates, and the great resignation actually caused people to achieve a higher salary when moving to a new job. Lower housing prices doesn’t always translate to lower rent prices, but the influx of new houses being built should give renters more options which will lead to lower overall rent prices.

The negative outlook is more of the same that we’ve been seeing so far in 2022. The war is still raging in Ukraine which means Russia could shutdown the energy supply for all of Europe. Also, the microchip shortage is only getting worse as companies within the US refuse to produce more chips unless Biden gives them federal funding. Additionally, inflation is still expected to rise throughout the next 18 months which means the Fed will likely continue to increase interest rates, which naturally lowers the prices of stocks and other assets.

 

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