Recession vs Technical Recession

Know the Difference Between a Technical Recession and a Recession

The U.S. economy shrank by 0.9% in the second quarter of 2022 — so America is technically in a recession.

Historically, the technical definition of a recession has been two consecutive quarters of declining GDP (Gross Domestic Product) and that has now happened in Q1 and Q2 of 2022.

Keep an eye out, though, for whether the country will “officially” be declared in a recession — for a couple reasons.

First, today’s data represents preliminary figures that will get revised two more times.

Additionally, most people don’t know this, but there’s a small group of prominent and reportedly fiercely independent economists who ultimately determine if America is officially in a recession.

Who are these people?

There are 8 of them, to be exact, and they’re selected by the National Bureau of Economic Research. They sit on the NBER’s exclusive “Business Cycle Dating Committee.”

So while many Americans already feel like a recession is here (hello inflation!) and while folks are used to using two quarters of declining GDP as the benchmark or general rule of thumb for a recession … that’s not how this committee (nor most economists) determine a recession.

Rather, the NBER Committee economists look at a bunch of data — everything from personal income and employment to industrial production and how retail sales are going — before they decide whether the U.S. economy is in a recession.

In fact, the committee’s website emphasizes that “there is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions.”

Long story short, they’re like: we decide; it’s complicated; and it ain’t a recession ‘til we say so! 

Oh, one last thing: when are they going to pipe up with their official determination?

They take MONTHS to decide! Lol

My advice: keep managing your finances wisely (or start doing so)!

No need for you to rely on accepted (or even arbitrary) financial data points, and macro economic conditions, in order to make good individual money management choices.

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