Is a recession on the horizon, or has it already been here?
A recession is defined as a period of temporary economic decline during which trade and industrial activity are reduced. Generally identified by a fall in GDP in two successive quarters.
Historically this has been the accepted method by which economists have determined the state of the economy but in 2022 this was a debated definition. Why? Some would say it is due to the pandemic and the unsustainable spending propping up the economy and then reversing course once much of the money pumped into the system via unemployment, loans, subsidies and just “free money” sent to the general populace. Another view would say it became very political ahead of the mid-term elections. It really doesn’t matter who or why the two consecutive down quarters of 2022 occurred, because the 3rd quarter of 2022 showed an increase and the “recession” ended. The bigger question is where are we headed from here?
Mid-term elections and the balance of power to come will have an influence on output going forward but the key ingredient seems to be how high and for how long will the inflationary period persist and how long afterwards will interest rates return to the historic lows experienced since the last recession of 2007-09? Unemployment is very low which would portend a quick turnaround in the economy, but again this indicator is skewed by the millions of employed prior to the pandemic who did not return to the workforce. Looking forward, another key indicator of how strong the economy is will be how well non-essential goods are selling. The essentials such as health care, food, basic staples and transportation will not be as affected but these items are not enough to keep growth from slowing overall. Keep an eye on durable goods reports going forward for a better indicator.
Why is this being written for Platinum Real Estate Advisors? Several reasons make this appropriate and not just to protect your investments in real estate and to suggest how to profit from a recession, but more importantly to take a look at your investment portfolio and speak with your advisors in order to get the right balance of assets to weather a potential storm. Looking ahead to 2023 it is likely we will experience a similar quarterly performance with at least two quarters in decline. Will they be consecutive? Will they be the beginning of a long-term slowdown, or will it be the beginning of a long-term recovery from the past several years resulting from the pandemic, war in Ukraine or the next unanticipated disaster. Time will tell, but we advise you to be prepared as you would for any natural disaster, and I don’t mean just a battery-operated radio and a few bottles of water & canned food.
If you work in an industry like the tech industry, get your resume updated as you may need it soon. You might also want to wait before buying anything that is not necessary until the coast is clear and avoid high risk investments. Don’t incur more debt and keep your savings as long as possible. Fasten your seat belts, it will be a wild ride!
