September 25, 2022

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US GDP: Why the 2022 recession is different from others

In the past two quarters, the gross domestic product of the United States has declined. This, according to economics books, means stagnation. However, for Joe Biden, the country is not in an economic crisis. Over the years, economists have developed theories, even quite different from each other, for determining when this phenomenon occurred.

In fact, this depends on the indicators taken into account: the state economy is a very complex matter and it is not always easy to analyze it. The current approach is to consider the trend of GDP (that is, the value of all goods and services produced): if the data is negative for two consecutive quarters, the country is in recession.

Is the Italian economy in recession in 2022?

According to the latest ISTAT data, Italian GDP is growing by 1% in the second quarter of 2022, so according to the above definition, we have not entered a recession, but contrary to popular belief, Italy is currently going through a period of economic growth.

For the United States, on the other hand, the situation is quite different after the publication of data from the National Bureau of Economic Research (NBER – equivalent to ISTAT to be clear) which confirmed that US GDP was negative 0.9% after the first and closed the quarter with 1.6% in the red .

Why does Biden say the US is not in a recession?

Historically, all recessions have coincided with a decrease in the number of employees (in short, with an economy in crisis, companies are laying off employees). Unlike in the past, consistent with the decline in GDP, there is an increase in the number of workers.

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Since World War II, this has been the first time we’ve experienced a recession as companies continue to hire. This may be due to two factors:

  1. generational change, with baby boomers (people born between 1946-1964) gradually retiring, thus reducing the available labor force in the market;

  2. Strong consumer demand due to the end of the pandemic (after the lockdown due to Covid, people may want to spend what they saved).

This situation is clearly unsustainable, as if the economy is bad it is impossible for companies to continue to hire. So we are faced with a fork in the road: either the economy will start over, justifying the growth in the number of workers, or the number of workers must collapse, justifying a crisis.

To make money in the stock market, you have to invest when the economy is bad

There is good news: If we do experience a recession, it could present an opportunity, as stock exchanges have always regained historically lost ground. If we take the 2008 recession caused by the subprime mortgage bubble, one of the worst in 50 years, we see that the S&P 500 took 895 days to return to pre-crisis levels. Stocks have always had the ability to recover, which is precisely why when the financial markets are bad we need to invest.

If you want to know where to invest.biz we invest, we are waiting for you at our webinar on Monday at 18:00, register here for free