Economists wonder if the US is currently in a recession

Economists wonder if the US is in recession after the latest employment report. (iStock)

In its latest economic update, the Credit Union National Association (CUNA) questioned whether the US is currently in a recession.

Gross domestic product (GDP) fell by 0.9% a year in the second quarter of 2022, marking the second consecutive contraction in GDP – the usual definition of a recession. This is better than the 1.6% annual contraction in the first quarter, the Bureau of Economic Analysis (BEA) reported.

“It’s very hard to say the economy is in recession when you have a job market this strong,” said CUNA Senior Economist Dawit Kebede. “A strong labor market implies strong consumer demand.”

According to the latest employment report from the Bureau of Labor Statistics (BLS), jobs rose by 528,000 in July. This was significantly more than previously predicted and restored all the jobs lost during the pandemic, Kebede said earlier.

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Economists debate definition of recession

Before the latest GDP figures were released, the White House Council of Economic Advisers said that even if the GDP report is negative, it is “unlikely” to indicate a recession. Typically, economists consider a recession to be a recession after two consecutive quarters of negative GDP growth. But the White House said that may not be the case in this case.

The National Bureau of Economic Research defines a recession as “a significant decline in economic activity that is dispersed throughout the economy and persists for more than a few months.” The agency will typically wait as long as a year to declare that a recession has begun.

And as CUNA economists analyzed the latest jobs report, they wondered if the economy is currently in recession. The group pointed out in its economic update that even rising inflation is mainly due to oil prices.

Referring to June inflation data, Kebede said that “prices are up 9.1% year over year and on a month-over-month basis that increase was 1.3% from May to June.”

“That’s a really big increase,” he continued. “However, energy prices contributed to half of the increase during that time. If it hadn’t been for that, inflation would have been half.”

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Fed likely to continue raising interest rates

Despite the recession debate, the Federal Reserve is likely to continue raising interest rates through 2022 and 2023 in its battle to curb inflation.

At its most recent meeting, the Fed raised interest rates by 75 basis points. This was the fourth time this year that the central bank has raised interest rates and raised the federal funds rate range from 2.25% to 2.5%.

CUNA forecast that the federal funds rate will reach 3.15% by the end of the year and 3.25% next year. It also forecast that the unemployment rate will remain stable at 3.6% this year and rise to 4% in 2023.

As the Fed continues to raise rates, interest rates on auto loans, home loans and credit cards, as well as other loan products, will also rise. Now if you want to take advantage of interest rates before they rise, consider taking out a personal loan to pay off a high-interest debt. To see if this is the right option for you, contact Credible to speak with a credit expert and get all your questions answered.

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