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  • Has the recession already started? May 2023 edition

Has the recession already started? May 2023 edition

Inflation has been weighing on households across the country for more than a year. And while prices are starting to fall again, increasing consumer purchasing power, inflation is not a problem of yesterday. As you map out your own household budget, it’s easy to see the lingering impact of higher prices.

With household budgets under pressure, many people have been asking for this over the past year whether we are in a recession. A high-inflation environment doesn’t always translate into a full-blown recession, but many experts are still predicting that the NBER will call a recession later this year.

Let’s take a closer look at what the experts are saying about this uncertain economic time.

Key learning points

  • The National Bureau of Economic Research (NBER) says the US is not currently in a recession.
  • According to NBER, the last recession period lasted from February 2020 to April 2020.
  • The NBER looks at a wide range of economic information to determine whether or not a recession is happening.

Recession: a tale of two definitions

Many people think that a recession has started when real gross domestic product (GDP) has fallen for two quarters in a row. However, the National Bureau of Economic Research (NBER) looks at several factors when determining a start date of the recession.

The NBER Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread throughout the economy and persists for more than a few months.”

Ultimately, this commission looks beyond the real GDP measure to determine whether the economy has entered a recession. This can make it confusing for consumers to know whether we are in a recession or not.

The NBER did not declare a recession in 2022

Looking at the two definitions, the two-quarters definition regarding real GDP is easier for the average investor to keep track of. Therefore, it is sometimes the case that investors think that we are automatically in a recession if there have been two consecutive quarters of negative real GDP growth.

The Bureau of Economic Analysis tracks US real GDP. Real GDP declined in the first and second quarters of 2022. Based on the general definition of a recession, falling real GDP in those two consecutive quarters would mean that the country was in recession.

However, real GDP grew in the third quarter of 2022. As a result, falling real GDP in the first two quarters was not enough for the NBER to speak of an official recession. For the NBER, real GDP is just one piece of the puzzle.

The NBER Business Cycle Dating Committee maintained that the country had not entered a recession by 2022. Instead, it believed that the most recent recession period occurred between February 2020 and April 2020.

Economic indicators: a closer look

The NBER’s determination that the US is still not in a recession has been the subject of sharp political debate. As the country’s politicians debate the finer points of the definition, it is helpful to understand the broader picture.

With more details in mind, it is easier to understand why the NBER committee has not announced a recession in 2022.

Real gross domestic product

While real GDP fell in the first and second quarters of 2022, it grew in the third quarter of 2022. The change of course was seen as a step in the right direction.

Real GDP continued to grow in the fourth quarter, increasing by 2.6%. Growth slowed in the first quarter of 2023, with real GDP increasing by only 1.1%. This has led some experts to speculate that a recession is more likely in the second half of 2023.


The consumer price index (CPI) is a commonly used measure of inflation. In the October 2022 report, the CPI was 7.7% higher than last year. While that was a slightly better figure than earlier figures from Summer 2022, inflation was still a major concern for the economy when Q3 real GDP results were released.

In response to skyrocketing prices, the Federal Reserve has responded raising interest rates with the aim of curbing inflation. But with a target inflation rate of 2%, the Fed still has a long way to go. Inflation peaked at 9.1% in June 2022. Since then, inflation has fallen steadily to 4.9% in April 2023.

The Fed’s monetary policy is clearly producing its intended effect: banks are incentivized to save and borrow less from each other. If the Fed raises interest rates, banks will raise interest rates on savings products to encourage consumers to deposit money with them. Variable interest rates (such as the rate on your credit card) rise along with higher Fed Funds rates.

The Fed’s monetary policy is seeping through the economy. When investors are more bearish with their money, companies see their earnings take a hit. This reduces optimism about the future of the economy, causing investment to fall further.

The Fed’s monetary policy is a painful but necessary response to unsustainable economic growth.


Perhaps the most important factor in preventing the NBER from declaring a recession is the unemployment rate. Relatively low unemployment is a beacon of hope in these tumultuous times. Last October, the unemployment rate rose to 3.7%, still a relatively low number.

Since then, unemployment has remained between 3.4% and 3.7%. The low unemployment rate is one of the main reasons why some experts argue that a soft landing is possible. Many cite the Sahm rule — a recession indicator meant to signal the onset of an economic downturn — to argue that we’re not in a recession.

The Sahm rule states that if the unemployment rate rises by 0.50% or more from its previous 12-month low, a recession may be on the way.

While we saw large waves of layoffs make headlines last year, the majority of the layoffs affected workers who worked at large technology companies. They were not significant enough to make the unemployment rate much higher.

Even with the layoffs, there are still plenty of employers across the economy. In addition, many other companies seem hesitant to initiate major layoffs because of the challenge of attracting talent.

NFC Small Business Optimism Index

Small businesses are an important part of a healthy economy. Unfortunately, small business owners appear to be losing confidence in the economic outlook. The National Federation of Independent Business saw its Small Business Optimism Index fall to 91.2 in October.

Since then, things have not recovered. The index fluctuated around 90 in the first months of 2023 and fell by 0.8 points to 90.1 in March. This was the 15th consecutive month that the index was below its 49-year average of 98.

According to the NFIB website, “Twenty-four percent of owners reported inflation as their top business problem, down four points from last month.” The website also states, “Small business owners who expect better business conditions over the next six months remain at a net negative 47%.”

The cynicism small business owners feel about the future of the economy should not be encouraging to pundits.

The housing market

Another part of the economy that has been affected by these tumultuous times is the housing market. As interest rates rise, potential homeowners are pushed out of the market due to a lack of affordability.

The Home Builders Index fell to 38 last October. As a result, builders were not optimistic about the housing market at the time. In the following months, however, the index started to turn positive again, reaching 45 in April this year.

How to invest during a recession

While the economy may not be in recession right now, economic indicators are across the board. One of the most interesting things about the economy over the past year was that inflation reached frightening heights while unemployment remained low. In such confusing times, it can be challenging to build an efficient investment portfolio.

As an investor, monitoring economic indicators across the economy is time consuming. However, it is essential as changing market conditions can affect your investment portfolio.

Keep an eye on reports such as the Consumer Price Index (CPI), which tracks inflation in the US economy. If inflation continues to fall, sentiment among small business owners may turn positive. Keeping unemployment low bodes well for a possible recession in the second half of 2023.

It’s important for investors to note that not all companies see their profits suffer from a recession. Consumer goods such as supermarket chains and utilities are generally less affected by a recession, while retail and less essential goods and services see demand decline.

Diversifying your portfolio is always a good idea. Stock prices generally tend to fall when a recession occurs, which some investors take advantage of to buy into an investment at a low price.

It comes down to

The NBER has yet to declare a recession in 2022, despite very high inflation and cynicism among small business owners. Now, in 2023, inflation is slowly declining and housing indices are turning positive again.

Unemployment has remained low enough for the NBER to avoid calling a recession, but the slowdown in real GDP growth and continued high inflation have led some experts to insist a recession is coming in the second half of 2023. Only time will learn.

We may not be in a recession, but most of us are feeling the effects of a tumultuous economy. As investors, keeping pace with the changing market is critical to making the best decisions for your financial goals.

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Shreya has been with australiabusinessblog.com for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider australiabusinessblog.com, Shreya seeks to understand an audience before creating memorable, persuasive copy.

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