The recent media speculation about whether we are in a recession, or on the brink of starting one is an important example of how looking at the facts is important. When we hear the word recession, it is natural to think about economic downturns such as what we experienced during 2008-09 and during the bursting of the technology bubble in the early 2000s.
While there is always the possibility that such dramatic downturns may occur, it is far from clear that such an outcome is likely or that you would be well served attempting to forecast such events. The current debate about the state of the economy is an example of why I think making such prognostications may be counterproductive.
Some economists and forecasters argue we are in a downturn because 1Q 2022 Gross Domestic Product (“GDP”) declined and because preliminary estimates for the second quarter show another period of a potential decline. However, while important, GDP is just one measure of the economy and relying on a single indicator may be misleading.
In reality, the US Bureau of Economic Research, the organization which publishes the beginning and ending dates of recessions, uses a variety of economic statistics, not just GDP, to make their determination.