Guest Post By Charity Ohlund
I attended a seminar last week hosted by Morgan Stanley, and one of the guest speakers was only on the stage for about 10 minutes. But in that short time, he took away a load of recession anxiety and brought a sense of calm to the entire room.
Jason Young, CIMA®, Senior Vice President at Capital Group /American Funds, certainly has the expertise to take a deep dive into inverted yield curves and how that might predict an upcoming recession, but instead he kept it simple. With all the talk of recession Armageddon, I felt so good when he left the stage, so I thought I’d share the highlights so you too can “vaccinate yourself against the media,” as Jason put it.
· Inverted yield curves are reasonably good at predicting a recession, but they are terrible predictors of recession timing. Historic recessions have started as soon as two months and as late as four years after an inverted yield curve shows up. Jason argued that we may see a recession by Christmas or by the time the women’s World Cup comes back around in 2023. There’s just no definite time frame.
· Speaking of recession, what IS a recession anyway? What is the definition? The loose definition is two straight quarters of declines in real gross domestic product (GDP), the broadest gauge of U.S. growth. If you’re like me, you tend to equate recession with The Great Recession, which Moody’s Chief Economist Mark Zandi calls a once in a 50- or 100-year event. Recessions post- World War II have typically lasted six months to 16 months, with the average being 10.4 months. Atypically, the Great Recession was longer at 18 months.
· Jason also reminded us the past 10 years have seen the largest expansion in US history, so a contraction is natural, usually short-lived, and simply means the rate of production slowed for two quarters or more. But as the largest and most powerful economy in the history of the world with an annual GDP of nearly $21 trillion, even a $1 trillion reduction in GDP would put the United States $6 trillion ahead of the second largest economy – China – at $14 trillion.
While Jason didn’t specifically address the real estate market and how a recession may affect it, here’s what I found: experts agree the next recession will not be caused by the mortgage and housing industry. The Great Recession was inarguably awful for home values, but home prices have actually increased in three of the last five recessions.
In a media environment where the scariest possibilities are often dwelled upon first, it’s easy to feel overwhelmed by recession fears, but Jason reminded us that companies still grow, money is still made, and life is generally pretty good, even during a recession. If you’ve experienced worry, dread, or anxiety about an impending recession, I hope today’s post helped you put aside your fears. With proper planning and an understanding of what the average recession looks and feels like, you can worry less and enjoy the good times more.