Recession Watch

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Peter, it's good to see you. Today we are on Recession Watch, and I want to start with a pop quiz. I know that's never fun, but I want to hear your recession take. A.

We're already in one. B. Recession in the next six months. C. Recession in the next 12 to 18 months.

Or D. We will avoid a recession. I think that's a little bit of A and C. I mean, back in July we had a lot of conversation about two successive quarters of economic retraction. Having the textbook definition of a recession, I'm not one for changing definitions just to accommodate spin or stories, but the conversation sort of died out. And there have been other indicators within the economy that say we're not quite in a textbook recession.

But I think in the next 12 to 18 months, maybe that's not when we enter into the recession, but we're certainly going to hear discussions and possibly go through other challenges that would indicate, hey, maybe this is a period of economic recession. So let's dive into some of those numbers, starting with the GDP. Take a look at these numbers real quick. The latest info shows the US economy grew 0.6% in the third quarter. That's a 2.6% annual rate, a rebound, but not enough to ease worries of a recession.

Do these numbers signify anything to you? Well, I think that they speak to the strength of what I believe in strongly, the American economy and the market. Mostly, I think this has to do with the fact that Americans are still spending money, but on the other hand, our savings rates have declined sharply. If you remember, there was a lot of talk and discussion about how much of our income we were saving during the COVID pandemic.

And of course, we're saving money because we can't go out and do anything. But savings rates reached an all-time high in April of 2020, right after the world shut down, and remained high through the duration of the following year. We were over 20% of our income, on average as Americans across America, was being saved. And now that rate is exceedingly low.

Now we've gotten back out into our routines, and in fact, things are costing significantly more. So now that savings rate is about 2.5%. It's under 3% based on the numbers that I saw at the end of last month.

So yes, we're spending money. GDP, Gross Domestic Product, that's how much money exchanges hands, but we're also saving significantly less, which could be an indicator of some future challenges. Another key indicator you're keeping an eye on is the unemployment rate.

Take a look here, please. So claims for unemployment benefits rose by 3,000 to 217,000, which was lower than economists had predicted. How do you factor these numbers into the overall health of the economy? Yeah, well, I think it is a factor that indicates the overall health of the economy, absolutely, but I do think that we also need to look at maybe what these job numbers represent, compared to what job numbers 5 or 10 years ago represented, because these are, in many cases, completely different types of jobs. People could be taking alternative jobs that are not the same as what they were earning, what they were making, what they were accustomed to in previous employment scenarios. You know, the gig economy, working from home, temporary jobs, some of these could be seasonal. So while the number is pretty fantastic that there were only 3,000 additional unemployment applications, which, you know, in the grand scheme of things, I hate it for those 3,000 people, but that's a very nominal amount.

However, you know, are they the same quality kind of job as what people are used to? And the trend is downward, so we hope that this is an indicator of the power of the American economy and the workforce and the labor market, and we hope that it remains strong, but I do have some concern here from what I'm seeing in other factors. And the markets do expect the Fed to back off its hawkish stance unless inflation remains stubborn. Let's take a look at other historical interest rate hikes. Do you have any predictions about future rate hikes? Well, they're already being less hawkish or aggressive with how they are addressing and discussing interest rate hikes. In December, it was advertised originally that they would be enacting another 75 basis points, 0.75% rate increase, and they backed that down to 0.5% because they're saying that what they're doing is working and that inflation is coming back into reality and that they are beginning to have some control over it. They are not wanting to raise interest rates to a point that it be overly damaging.

In fact, the language they've used is a soft landing. So they're saying that inflation is doing what they intended it to do by raising rates, that it's coming back down. They're all patting themselves on the back for a job well done, and therefore they are being less hawkish about these interest rate increases. Not to say that they're stopping. I think that they will have several more rounds into 2023 of interest rate increases, which is another factor that could have effects and certainly be included in our discussion of what causes and challenges the economy is facing and are we going to enter into a recession.

Absolutely. Meanwhile, just to end on a good note, the Dow had the best October ever. The S&P had the best October since 2015.

A bright shining spot in a dismal year, Erin. If you don't recall, during the first six months of the year, we had our worst year on record. For the bond market in particular, one of the worst years for the stock market, the worst in the last 40 years. I love that we had some positive news and some rebound and recovery, but that's what happens in the stock market. Some of the best days in the market are directly after some of the worst days, some of the best months directly after some of the worst.

Some of the best years directly after some of the worst. That's the way that it works. And one uptick does not indicate the end of a trend either. So while I'm hopeful that it is showing some strength and stability in the markets, we are in the midst of a downward trend, seeing that shining moment, that good month of October and all cheering and applauding and hopeful. But it does not mean the end of the volatility and I don't expect it to be the end of the volatility. Okay. Well, Peter, this was really helpful to talk through and I think that there's a lot of value in this conversation, but I'm sure people might have a few more questions about how it relates to them specifically.

So if they do, what's the best way to reach you? Well, and it is a very specific thing. What this looks like, what this means for somebody who is in their retirement years or nearing those retirement years is to be very different from somebody with 15 or 20 years left in their working career. Challenging markets can be a buying opportunity in the right situation or they can be very detrimental. So to work through that, what your approach should be, give us a call, 919-300-5886, 919-358-86, or you can email me or my team at info at rashanplanning.com or visit the website, rashanplanning.com.

It looks like richonplanning.com. All right, Peter, thank you. Always a pleasure, thank you. Thanks for having us.