It’s no secret this year has been tough on Americans financially. With costs rising for basic necessities such as food, energy, and shelter the impact is felt quickly by everyone. Many people have asked me the last few months if we are in a recession and if it will get worse.
When I hear that question it’s generally because they are more worried about their specific situation than the entire economy. Overall economic activity affects us all in some way. As individuals we have very little control over the big picture. However, we have immense control over our personal economy(day to day life). So before I dive into if we are in a recession, or not, let’s focus on this topic for a second.
If you are concerned about the economy, and its impact on your life the best thing you can do is insulate yourself from it as much as possible.
How do I do that?
Understandably you might be asking yourself that question. It’s quite simple. Create and follow a sound financial plan that ensures no matter what happens in the world you will be just fine. That’s the path I put my clients on.
Here are a few action items that will serve you well.
- Spend less than you earn
- Set up an emergency fund
- Invest in inflation beaters and hedges
- Create a financial and tax plan
The best thing is these steps are really easy to implement. Cutting back on unnecessary expenses is always a smart bet. Simple things like setting up automatic transfers for your financial accounts is super easy in modern times. When transfers to your IRA, emergency fund, and bill payments are on autopilot that reduces stress while freeing up your time. Even crafting your own simple financial plan will make a difference. Of course a financial plan crafted by a professional is way better. Bonus points if your plan includes tax strategies to save you even more money which is done automatically here at Valor.
Now, let’s answer the question if we are in a recession.
Historically, when Real GDP declined for 2 consecutive quarters that qualified as a recession. Then, Joe Biden’s White House muddied the definition in July 2022 stating a plethora of factors need to be considered before declaring if America is in a recession. True, there’s a lot to it. But economic growth is one of the few things that can be simplified to either expansion or contraction. If you are wondering what Real GDP is it’s a math formula to take out the effects of inflation.
For our purposes we will stand by the tried and true definition.
Here is what Real GDP looks like the last five years, and fortunately for us Third Quarter 2022 results were released this week.
As you see Real GDP declined in Q1 and Q2 this year. That qualifies as a recession from January through June. Then, economic activity picked up with Q3 showing an increase. Keep in mind the Q3 number will be revised a couple times over the next month so it could very well be the USA experienced weaker, or stronger than reported GDP growth. While the economic decline earlier this year was minimal, it has felt worse due to high inflation.
This has been a mini recession so far. Of course things can get worse if Congress continues to do what it’s best at which is mis-managing the economy. They should really stay out of it since they do more harm than good.
For now it looks like the economy is treading water so it will be imperative to see how 2022 ends.
-Michael Distasio
