On Thursday, July 28, Newport Beach Chamber of Commerce President and CEO Steve Rosansky released a video announcement to Chamber members and other businesses and community members discussing the possibility that the U.S. economy is headed towards a recession.
“Today it was announced that the nation‘s gross domestic product, commonly referred to as the GDP, has declined for the second straight quarter,” said Rosansky in the video. “From January through March, the GDP declined 1.6 percent on an annualized basis, and in the April through June time frame, it declined an additional nine tenths of a percent. Traditionally, two quarters of declining growth would indicate that the economy is headed into a recession.”
Rosansky noted that this news comes on top of the federal reserve bank’s announcement of a three quarters percent increase in the federal funds rate, and continued announcements of high inflation numbers that are showing up in most sectors of the economy.
“Whether the economy is currently in a recession is the subject of much debate, and the answer may not be as simple as two quarters of declining GDP,” suggested Rosansky. “Officially, the National Bureau of Economic Research determines when the economy is in recession. They define a recession as a significant decline in economic activity that is spread across the economy and that lasts more than a few months. A committee of NBER economists gauges the depth, duration and diffusion of that decline before making that declaration that our economy is in recession.”
At this point, said Rosansky, the indicators of a recession are mixed and most likely lead to the conclusion that we are not currently in a recession, although one may be on the horizon.
“Slowing job growth is a typical indicator of a slowing economy. However, last month a robust 372,000 new jobs were created, and unemployment nationally was a very low 3.6 percent rate. Labor shortages and the difficulty in hiring employees has been the number one complaint I hear from local businesses. In Orange County the unemployment rate is 2.9 percent, well below the national rate and the 4.2 percent rate for the state of California.”
Rosansky added that conversely, interest rates have been rising as evidenced by the four increases the fed has announced this year.
“Short term interest rates are now higher than long term rates, a situation that is known as an inverted yield curve, which is also an indicator that the economy is headed for a recession,” explained Rosansky. “We are also seeing a significant cooling off in the real estate market as higher mortgage rates have impacted borrowers’ ability to purchase new and existing homes. Other signs can be seen in the retail sector where many department stores are lowering sales expectations and prices in anticipation of the declining economy.”
“For many people, whether we are officially in a recession is not as important as their day to day experience” concluded Rosansky. “With high gas prices at the pump and higher prices for food as grocery stores or for a meal in a restaurant, their perception is that the economy is not at a good place, and we all know that perception frequently turns into reality.”
For questions or more information, call the Chamber of Commerce at (949) 729-4400 or visit NewportBeach.com.