Is an economic recession on the horizon?
Someone once joked that economists and weather forecasters were the only professionals who can be consistently wrong and still have a job the next day.
Economists do a significant amount of forecasting based on a variety of data, but when it is all said and done, it can be hit or miss. There are those who are predicting an economic recession and those who are not. Economics was once labeled the “dismal science” because of its gloom and doom predictions, and the great John Maynard Keynes himself is known to have said, “in the long run, we are all dead.” I prefer to be more optimistic, so I guess I am an “optimistic dismalist.”
Before I get to my prediction, let me begin with the pandemic. There is only one other time in recent history that we faced a health crisis of such proportions, and that was over 100 years ago during the 1918 Flu Pandemic. Please do not call it the Spanish Flu because it had little to do with Spain and is considered offensive.
Two years ago, I watched an episode of “American Experience” on PBS titled “Influenza 1918.” I have heard of the 1918 influenza pandemic but was unaware of how incredibly devastating it was. Over 50 million people around the world died; about 675,000 died in the United States alone. Wow! There were three waves over a period of one year. So, while we have not experienced anything like this current pandemic in our lifetimes, it has happened before. We are at 1 million dead currently in the U.S. and still counting. That pandemic ended in 1919, soon after that came the “Roaring ’20s” and economic prosperity. Will we experience the “Roaring ’20s" again?
Things are very different now than they were 100 years ago. After the pandemic 100 years ago came a period of incredible economic growth throughout the 1920s, known as the “Roaring ’20s.” Then came the bust in 1929, known as the Great Depression — the worst economic period in U.S history. Are we in for roaring times or recessionary times?
A recession is a period of contracting economic growth or, based on the dictionary, 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. However, it really depends on how steep a decline and the level of economic activity.
Take, for example, GDP declined the first quarter of 2022 by negative 1.4%. Suppose it declines again. Will we have a recession then? Maybe, maybe not. It all depends. According to the National Bureau of Economic Research, which officially declares recessions, a recession is a significant decline in economic activity that is spread across the economy and lasts more than a few months. Depressions last much longer and are much worse. At this point in time, there are just too many monetary and fiscal tools at our disposal for anything like the Great Depression to occur. Note that before the Great Depression, there was little government interference in the economy. It was Keynes who advised more government interference to right the economy.
On the negative side, the economy shrunk in the last quarter, inflation is approaching double digits, the Fed is raising interest rates, supply chain issues continue to hound China and the U.S., employees are still hard to find for many businesses, there is a war in which the U.S is indirectly involved, the pandemic is not over, and the stock market is in decline, among other things.
On the positive side, jobs have continued to grow by over 400,000 for 12 straight months, consumers continue to spend more (yes, due to those doggone higher prices), companies are hiring, wages are up, and generally people are optimistic as we emerge from the pandemic.
So should we be expecting a recession or not, you ask? According to this “optimistic dismalist,” talks of a recession are greatly exaggerated. Once we begin to figure out the supply chain issue, the Fed remains careful about their interest rate hikes, COVID cases continue to decline, we put a brake on inflation, remain positive and avoid self-fulfilling prophesies, and bring world peace, we will be OK.
Kojo A. Quartey, PhD, is president of Monroe County Community College and and an economist. He may be reached at kquartey@monroeccc.edu.
This article originally appeared on The Monroe News: Kojo Quartey: Is an economic recession on the horizon?
