As we all began to emerge from the pandemic in 2021, Americans started spending more after being stuck in their homes. Holiday shopping was up, unemployment numbers were down, and it’s safe to say that many of us were feeling optimistic about our finances heading into 2022. However, things began to change with increased labor costs, stalled supply chains and rising interest rates.
Could these be signs of a recession?
What Is a Recession?
An economy is considered in a recession after two consecutive quarters of economic decline. Economic decline is measured by negative gross domestic product growth. The GDP is reported after the quarter is complete, meaning it is possible that a recession has already been underway for a few months before it becomes official. Nowadays, there are many other factors that are used to measure whether a recession is occurring, including employment numbers, wholesale-retail sales and real income.
While recessions can be uncomfortable for us and our finances, they are a very normal part of the business cycle.
Many of us think of high interest rates or a stock market crash as the cause of recessions. But there are a number of factors that can play a part. Falling housing prices and sales can slow down the economy. If homeowners begin to lose equity in their homes and cannot take out a second mortgage, they may be forced to cut back on their spending. Panic by consumers can also affect overall spending when people become nervous about the state of the world and stop spending their money. Poor business practices have caused recessions in the past. There are many factors that can affect how we spend or invest our money, and we need to be prepared for them all.
Recessions Throughout History
The United States has experienced 19 recessions throughout history, and 14 have happened in the last 100 years. A few of the most memorable are The Great Depression, caused by the stock market crash of 1929, and the recession caused by the dot-com bubble bursting in 2001. And of course, many…
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