BY KRISTIN HOVENCAMP
Is the U.S. economy heading into a recession, or are we already in one? The definition of a recession is two consecutive quarters of negative growth. Looking at gross domestic product (GDP) growth, you will probably determine that the U.S. economy was in a recession during the first half of the year and is now coming out of it. Why? Because it put up a better growth rate in the second quarter than in the first quarter. However, looks can be deceiving. The U.S. economy was weaker in the second quarter of this year than in the first quarter. Now you understand why no one can agree if or when we are in a recession.
In another aggressive move to fight inflation, the Federal Reserve (Fed) raised the federal funds rate by 0.75% in mid-July – following the June increase of 0.75% and the fourth rate hike this year. Increasing the rate has affected the cost of lending across the economy, through which the Fed hopes to continue putting downward pressure on inflation, which remains persistently high. If inflation continues at current rates, we can expect even further increases in the benchmark interest rate.
Despite the gravity of recent events, strong job growth, wage gains, and abundant savings continue to support consumer spending. Even as consumer confidence has decreased and retail sales have recently signaled a slowdown, consumers have shown a willingness to spend on services like air travel and hospitality this summer.
Unless some critical contributors to the environment change, we should expect some challenging months in the second half of 2022. As the economy slows and we navigate what has become a bear market, a recession still seems unlikely in 2022. However, economic projections give above even odds that a minor recession could occur in the middle of next year. While down markets are unpleasant, our experience leads us to believe that vigilance, adaptability, and resolve will see us through and position us for the future.
Kristin Hovencamp is an Investment Executive at RJFS, and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. All investing involves risk, including the possible loss of principal amount invested. No investing strategy, including rebalancing or dollar cost averaging, can guarantee your objectives will be met. 675 Sun Valley Road Ketchum, Idaho, 208.726.0605. HazlettWealthManagement.com