Talking heads gonna talk. We are definitely, 100% not headed for recession. Oh, and we are for certain, without a doubt barreling headlong into a recession. Which answer you get depends largely on which channel you turn to or which podcast you listen to.
Who’s right? Does anyone have a clear crystal ball? The short answer is “no.” Everyone tries to predict the future, and at least half of them reliably look like an idiot this time next year.
Let’s run the checklist and see what signs tell us we’re in a recession — and which ones tell us we’re not.
Signs We Are Headed For Recession
Two Consecutive Quarters of Economic Contraction
Some experts insist that “recession” has an official, concrete definition — two consecutive quarters of GDP contraction. The economy contracted in Q1 and Q2 of this year, so by that definition, a recession technically already happened.
Inverted Yield Curve
The yield curve between the ten-year treasury bond and the two-year treasury bond is currently inverted. This is one of the most famous “canaries in the coal mine” for a recession.
A yield curve calculates the difference in yield between a long-term bond and a short-term bond. Want to know where we are on the most popular yield curve? Subtract the current yield on the two-year treasury from the current yield on the ten-year treasury.
When the yield curve is at a positive value, it means that short-term bonds have lower yields than long-term bonds. This is how it’s supposed to be. But if the yield curve is inverted — that is, its value is a negative number — it means that short-term bonds have higher yields than long-term bonds, meaning investors are skeptical about the short-term economy and moving money into long-term investments.
What does all this mean? Rare inversions of the yield curve have frequently preceded famous recessions. This is not a perfect indicator. In the late 1960s the yield curve inverted twice, but no recession followed. The yield curve inverted in late 2019, and the COVID recession followed … but there was no way an unprecedented global shutdown could have been priced into those bond yields. That would have been real magic.
As we have discussed many times (including last week), inflation is higher than it has been in many decades. If this keeps going, Americans can expect to have to tighten their belts and buy less stuff, slowing down the economy. The Fed is fighting inflation with higher interest rates … but ironically that could cause a recession too by suppressing demand.
Signs We Aren’t Headed For Recession
Q3 Economic Growth
While the economy contracted in Q1 and Q2, GDP grew in Q3. So if we’re adhering to the strict definition of “recession” from above, technically the recession already came and went.
Record Corporate Profits
Corporate profits grew 6.2% in Q1 and another 2.6% in Q2. Q3 earnings have been a mixed bag, but we’re still in positive territory.
According to economists, the US has a “natural” permanent unemployment rate of 4.4%. Above that indicates economic weakness; below indicates economic strength. Well, the unemployment rate is 3.5%, well below the “natural” rate. This doesn’t account for the toll inflation may take on the buying power of those wages.
What Does It All Mean … And What Should You Do?
No two recessions are alike, and hindsight is always 20/20. We could be heading into a recession; or we could be headed for recovery. A year from now, half of the talking heads are going to look pretty stupid.
If you’re wondering what to do to grow your wealth in such uncertain times, the best strategy is to target real estate in strong markets. Real estate enjoys the benefit of being highly localized. Strong local economies tend to grow even when the US economy struggles as a whole.
Don’t believe me? Cities that grew during the Great Recession included Oklahoma City, Austin, San Antonio, Houston, Seattle, Charlotte, Raleigh, San Jose, and Salt Lake City. If you were invested heavily in those cities’ housing markets back in 2006, you would have probably come out of the Great Recession nearly unscathed.
So which housing markets are going to do fine in the next recession, when and if it ever materializes? MartelTurnkey has crunched the data and identified our winners … and we’re putting our money where our mouth is, buying up property there like it’s going out of style.
If you want to continue growing your wealth, recession or no, reach out to us today to find out where we’re investing … and how you can get in on the action with us!
If you like this article you may be interested in the article on how inflation is impacting your purchasing power.