The risk for a recession is highlighted by clear evidence that the US economy has slowed, as well as falls in short and long term interest rates.
In 2021, will the United States be in a recession?
Last year, the US economy increased at its quickest rate since Ronald Reagan’s administration, coming back with tenacity from the coronavirus recession of 2020.
Is the United States about to enter a recession?
The US economy will have a recession, but not until 2022. More business cycles will result as a result of Federal Reserve policy, which many enterprises are unprepared for. The decline isn’t expected until 2022, but it might happen as soon as 2023.
What will the state of the US economy be in 2021?
While GDP fell by 3.4 percent in 2020, it increased by 5.7 percent in 2021, the fastest pace of growth since 1984. With a total GDP of $23 trillion, the United States remains the world’s richest country. In addition, average hourly wages have risen 10% from $28.56 in February 2020 to $31.40 in December 2021.
Is the economy back on track after Covid?
Economic growth has outperformed consensus predictions made at the start of the pandemic when the economy touched bottom in the second quarter of 2020. As a result, real GDP topped its pre-pandemic level in the second quarter of 2021. With the ongoing effects of the fiscal stimulus passed by Congress in 2020 and 2021, pent-up demand from consumers for face-to-face services, and labor market and asset price strength, real GDP appears on track to rise at a rapid pace of around 6% in 2021. To be sure, the Delta variation puts that projection in jeopardy. Consumer purchasing and general economic activity were impressively robust even in the early phases of the epidemic, when people had significantly less information and mitigating tools.
The CBO’s upward revisions to its predictions reflect the surprise strength of the economy and the improvement in expectations (shown in figure 1). The amount of GDP in the third quarter of 2020 was 4.8 percent higher than the CBO’s prediction at the start of the quarter. Furthermore, since July 2020, the CBO has revised up estimated GDP for 2023 by roughly 7%, resulting in a projected GDP level for the end of 2023 that is now 2% higher than the pre-pandemic forecast. Nonetheless, the cumulative deficit in real production compared to pre-pandemic projections is anticipated to be around $400 billion in 2012 dollars by 2023. (CBO 2020a, 2021c). It’s worth noting that the CBO’s predictions show a soft landing, with real GDP only growing modestly by late 2022. It’s possible that the slowdown may be more abrupt and unpleasant than those estimates suggest.
Fact 2: The sharp decline in employment in spring 2020, which was largely concentrated in the services sector, has only partially reversed.
Figure 2 depicts the percent change in overall employment from the peak month preceding recent economic downturns to the month when employment returned to its previous business cycle high. Across the job market, employment is still 5.3 million lower than it was in February 2020, and nearly 9 million lower than it was before the outbreak.
Employment reductions in the leisure and hospitality sector accounted for nearly 40% of the total 22 million jobs lost from February to April 2020. In contrast, since then, a partial rebound in that industry has supported employment growth. Monthly employment increased by more than 700,000 on average from February to July of this year. However, in August, the pace slowed substantially. The pandemic’s comeback certainly slowed the rebound in the leisure and hospitality industry, which had no net job gains in August. Employment in that sector is still down 1.7 million jobs since February 2020.
In comparison to past recessions, the COVID-19 recession has been particularly harsh for the services sector. Consider the average outcomes of the four recessions from 1981 to 2019, 18 months after they began: employment in the service sector was 1% lower than it had been before the recession, while employment in the goods sector was 10% lower. In comparison, employment in the service sector was still 4% lower in August 2021 than it was in February 2020, while employment in the products sector was 3% lower.
Fact 3: Millions of workers are no longer eligible for Unemployment Insurance.
In certain areas, enhanced UI will expire in the summer of 2021, whereas in others, it will end in the first week of September 2021. That set of regulations dramatically boosted eligibility for workers who were not eligible for regular UI (Pandemic Unemployment Assistance), increased the amount of weeks a worker may receive UI (Pandemic Emergency Unemployment Compensation), and raised the generosity of benefits (Federal Pandemic Unemployment Compensation ). Only 30% of workers were eligible for unemployment compensation prior to the CARES Act, which established PUA, PEUC, and FPUC.
Weekly ongoing UI claims for standard UI benefits and Extended Benefits, which automatically extends weeks of eligibility based on a state’s economic situation, as well as claims for emergency programs: PUA and PEUC, are superimposed on the total number of unemployed workers in Figure 3.
It’s worth noting that the unemployment rate drastically underestimates the number of people who lost their jobs as a result of the outbreak. A person must be actively looking for employment to be classified as legally jobless; yet, millions of people have essentially exited the labor force since March 2020 and were eligible for the extended UI benefits. There was a gap of more than 5.5 million workers in the job market who were unemployed but not receiving UI after the emergency programs expired. We expect the gap to narrow only slightly by the end of the year.
Fact 4: The number of job openings and the number of workers quitting their jobs is higher now than in the past 20 years.
Despite the fact that job vacancies are at their greatest level since the end of 2000 (the most recent statistics available), many factors are limiting employment growth. One factor is that the number of people quitting their jobs each month has reached an all-time high. Because workers are more inclined to switch occupations in a strong labor market, the quit rate often changes with the job opening rate, as seen in Figure 4. Furthermore, the mix of labor demand is shifting in the current context, and workers may be taking time off from temporary positions taken during the pandemic. Record job openings, sluggish job matching, and low labor force participation have all combined to put downward wage pressure on workers, especially those in the service industry, younger workers, and those with less formal education.
Aside from the low rate of job matching, the lack of improvement in the labor force participation rate, which is the percentage of the population that works or is actively looking for employment, is also concerning. Between February and April of last year, when roughly 8 million people exited the workforce, this figure plummeted from 63 percent to 60 percent. By June 2020, the participation rate had regained almost halfway, but has remained stubbornly low since then.
Fact 5: Even with recent jumps in inflation, lower income workers are seeing increases in real wages.
Wage inflation has been excellent news, especially for low-wage workers and those in certain industries. Wages in the bottom quartile of the wage distribution are risen 7.0 percent from pre-pandemic levels, or 4.6 percent annually, as illustrated in figure 5. That rate of growth is comparable to what that group saw in 2019, when the job market was thought to be relatively tight. Wage growth has been particularly substantial in several industries. For example, average hourly earnings in the leisure and hospitality sector have increased nearly twice as fast as the total private industry average over the last 12 months. Retail commerce, transportation and warehousing, and financial operations are all enjoying considerable increases in hourly earnings.
Workers’ purchasing power is not increasing as quickly as nominal salaries due to recent increases in the rate of inflation. From March to June 2021, actual wages fell as a result of recent price hikes. These decreases somewhat offset increases in real wages for wage earners in the bottom quartile early in the epidemic, when inflation was low and nominal wages were rising. Real wages for that group accelerated considerably in July and August. Overall, real earnings for the poorest quartile increased by 2.4 percent, or 1.6 percent per year, from February 2020 to August 2021. This is significantly lower than the 2.4 percent annual rate of real pay growth seen in the bottom quartile in 2019. Furthermore, in contrast to a 0.8 percent increase in 2019, actual salaries for individuals in the top quartile are essentially unchanged.
Fact 6: Post-pandemic, income after government taxes and transfers, as well as household saving, have been above their recent trends.
In 2020 and thus far in 2021, disposable personal income (DPI, or total aftertax income) was larger than it would have been if DPI had merely grown at its five-year trend rate. Since the beginning of the epidemic, DPI has been higher than trend by a total of $1.4 trillion.
Household savings have risen as a result of huge increases in DPI and constrained services spending during the pandemic. From March 2020 through April this year, the rate of saving was larger than it had been in the previous four decades in every month; in some months, it was nearly double the record postWorld War II peak. In total, households had $2.5 trillion more in savings than they would have had DPI and spending risen at trend rates in the five years before to the pandemic. Furthermore, property and stock market prices have risen dramatically, resulting in significant gains in household wealth. Those funds will be used to fund the unmet demand for foregone spending. Households will eventually see increased savings and wealth as financial resources to sustain long-term, reasonably consistent consumer expenditure.
Fact 7: Fiscal support led to a reduction in poverty in 2020.
Poverty climbed from 10.5 percent to 11.4 percent between 2019 and 2020, according to the Official Poverty Measure (OPM). The percentage of the US population living in poverty, as assessed by the Supplemental Poverty Measure (SPM), decreased from 12 percent to 9 percent in 2020 after accounting for the massive economic support offered to households (figure 7). While SPM-measured poverty is normally lower than OPM for children, SPM-measured poverty was lower than OPM for the first time in 2020.
The increase of unemployment compensation and checks to households were the two policies that had the most substantial effects in comparison to previous years since they were the most different from previous policy. SPM poverty would have grown to 12.7 percent instead of declining to 9.1 percent if Congress had not enacted relief for families.
Another factor contributing to the reduction in poverty was the relatively significant salary growth seen by those at the bottom of the income distribution who stayed working (see fact 5). Those salary increases followed robust wage growth in 2018 and 2019, when the tight labor market favored lower-paid workers.
In 2021, ongoing fiscal supportparticularly full refundability and increases in the child tax credit, as well as increases in the maximum benefit of the Supplemental Nutrition Assistance Program (SNAP)along with continued labor market recovery should help to pull households out of poverty. Making permanent some of the actions undertaken to combat the COVID-19 recession will allow for sustained progress in lowering post-tax-and-transfer poverty as assessed by the SPM.
Fact 8: To date, 36 states have made progress in catching up on delinquent rent and mortgage payments.
In the spring of 2020, politicians put in place numerous relief programs to assist Americans struggling to make mortgage and rent payments in the midst of a significant contraction in labor income. These initiatives began with foreclosure and eviction moratoria and eventually expanded to include financial assistance.
Delinquent mortgage borrowers who had a federally backed mortgage, which includes mortgages backed by the Federal Housing Administration, Veterans Administration, Fannie Mae, and Freddie Mac, and were experiencing economic hardships as a result of the pandemic, were automatically eligible for forbearance through September 30, 2021. Mortgage servicers, who are normally compelled to make payments to investors regardless of whether borrowers are late, have received assistance from the government. According to the Federal Reserve Bank of New York, forbearance plans disproportionately benefited low-income borrowers, particularly those with FHA-insured loans and those who lived in low-income areas (Haughwout, Lee, Scally, and van der Klaauw 2021). In addition, the American Rescue Plan, enacted by Congress, offered over $10 billion to homeowners who were behind on their mortgage and utility payments.
Although some states have extended such safeguards, the federal eviction moratorium expired in August 2021. The federal government has set aside $46.5 billion to assist renters in making back payments as well as landlords who are owed such amounts. Even with recent US Department of the Treasury (2021) recommendations to speed delivery, state and local grantees had only provided $5.1 billion of the first $25 billion allotted for emergency rental assistance through July 2021, according to news reports (Siegel 2021). More than 60% of households receiving aid in the first quarter of 2021 had household incomes that were less than 30% of normal incomes in their geographic area.
Nonetheless, stronger fiscal support and a partial labor market recovery have contributed to a reduction in the number of persons who are behind on their payments. From each state’s high to the most recent data spanning July and August, Figure 8 indicates how much progress has been made in catching up on rent or mortgage payments. Between December 2020 and March 2021, three-quarters of states experienced their greatest rate of missed rent or mortgage payments. Since peaking, the percentage of residents reporting missed rent or mortgage payments has decreased by statistically significant levels in 36 states.
Fact 9: The strength in durable goods spending and weakness in spending on consumer services stands in sharp contrast to previous recoveries.
Together, social alienation and strong government support for households resulted in a boom in durable goods spending while households cut back on services spendinga marked deviation from typical recession behavior. Overall real spending on goods fell 13% from February to April 2020, as shown in figure 9a, but quickly recovered and had surpassed its pre-pandemic level by June. Vehicles, household furniture, and leisure equipment were among the items purchased in 2021; after accounting for inflation, purchases of those durable goods had averaged 25% greater than pre-pandemic spending. During the pandemic, however, spending on servicesmany of which were face-to-face transactions like live entertainment and dining at restaurantsfell sharply. In the spring of 2020, real services spending fell by more than 20%, and it has yet to rebound to pre-pandemic levels.
These trends differ from those seen in previous recessions. During most previous recessions, spending on durable goods remained depressed for an extended period, as in the case of the Great Recession, when goods expenditures were 7% below their pre-recession peak 18 months after the recovery began. Furthermore, as shown in Figure 9b, expenditure on services momentarily plateaued in the first year of recovery in each of the previous three recessions before resuming increase. However, in none of these previous recessions did services fall below their pre-recession levels for an extended length of time, highlighting the COVID-19 recession’s distinctiveness.
As individuals resume routine activities, demand has shifted back toward services in recent months. From March to July, goods purchases fell slightly, while service spending surged by 3%; in particular, expenditure on live entertainment, hotels, and public transportation increased by 35% in those four months.
Fact 10: Retail inventories are unsustainably low.
Much of the consumer demand for goods has been fulfilled by inventory drawdowns through August 2021. The retail inventory-to-sales ratio increased at the start of the epidemic, when spending plunged, as seen in figure 10. However, the ratio has dropped dramatically since then. This is especially true in the car industry, where chip shortages have hampered manufacturing. Production has been insufficient to meet demand even outside of that sector. Orders that haven’t been filled and delivery times that haven’t been met are on the rise across the manufacturing industry. Disruptions in global supply chains have been a persistent stumbling block, particularly backlogs at ports, which have driven up shipping costs to historic highs.
On the one hand, manufacturing capacity utilization has nearly restored to pre-pandemic levels. On the other hand, historical patterns and recent manufacturer surveys imply that once demand returns, manufacturers will expand utilization well beyond that level to replenish stockpiles.
In addition to inventory investments, survey data suggests that capacity and productivity investments are on the rise. Since the second quarter of 2020, private investment in equipment and structures has partially recovered, but has not yet restored to pre-pandemic levels. Investment in business equipment had recovered as a share of potential output as of the first quarter of 2021, although more investment is needed to make up for lost investment during the epidemic. Investment in residential structures has more than compensated for a resurgence in structure investment; in fact, residential structure investment as a percentage of output has returned to levels not seen since 2007. Nonresidential structural investment, on the other hand, continues to fall as a percentage of potential output.
Fact 11: There were more new business applications and fewer bankruptcies in 2020 and 2021 than in 2018 and 2019.
Newly formed firms appear to be a significant source of the goods and services that families require. Figure 11a depicts new business applications from enterprises classified by the Census Bureau as having a high proclivity to hire people. Since the agency began tracking the series in 2004, we have seen the highest amount of applications since the summer of 2020. In the aftermath of the pandemic, applications may have indicated new commercial prospects. The increase in total new applications is concentrated in online retail, which accounts for a third of all new applications, and service sector companies, which saw some of the worst job losses early last year (Haltiwanger 2021).
Due in part to financial support like the Paycheck Protection Program, which granted forgiven loans to small and medium-sized enterprises, fewer businesses have collapsed in the last year and a half than had been expected. In Figure 11b, the total number of commercial bankruptcies during the last four years is compared. In total, there were 17% fewer bankruptcies in 2020 than in 2019, and 2021 is on course to have the fewest commercial bankruptcy filings since at least 2012. (when the data became available). In particular, Chapter 7 and Chapter 13 filings, which reflect asset liquidation and sole proprietorships, respectively, were 16 percent and 45 percent lower in 2020 than in 2019. In contrast, Chapter 11 filings, which have generally reflected large-firm reorganizations, increased by 29% in 2020. That increase is also likely due to laws passed in February 2020 and then expanded through the CARES Act, which let smaller businesses to restructure under Chapter 11 and thus stay in operation.
What is the state of the economy in 2022?
According to the Conference Board, real GDP growth in the United States would drop to 1.7 percent (quarter-over-quarter, annualized rate) in Q1 2022, down from 7.0 percent in Q4 2021. In 2022, annual growth is expected to be 3.0%. (year-over-year).
Is America experiencing a downturn?
The United States is officially in a downturn. With unemployment at levels not seen since the Great Depression the greatest economic slump in the history of the industrialized world some may be asking if the country will fall into a depression, and if so, what it will take to do so.
What should I do to prepare for a Depression in 2021?
We’ve talked about how individuals survived the Great Depression in Survival Scout Tips, but today we’d want to take a look at the Great Depression from a different perspective. Rather of focusing on surviving the Great Depression, let’s think about what efforts we can take now to prepare for the Greater Depression, which experts fear could happen in our lifetime.
Before the Great Depression, some people took advantage of windows of opportunity, such as diversifying their income. We can learn from history and use this information to make better judgments to secure our livelihoods in the case of a Greater Depression because hindsight is 20/20.
Millions of people lost their jobs during the Great Depression. The percentage of women employed, on the other hand, increased. “From 1930 to 1940, the number of employed women in the United States increased by 24%, from 10.5 million to 13 million,” according to The History Channel. Despite the fact that women had been progressively entering the workforce for decades, the Great Depression forced them to seek work in ever greater numbers as male breadwinners lost their jobs.”
Women took on more steady jobs, such as nurses and teachers, as one of the causes. During the epidemic, we became accustomed to hearing about “essential workers,” or those who were required to keep the country running while other firms were closed.
Take action now to make oneself indispensable. Make every effort to convince your manager that you are an indispensable employee. This will not only keep you employed during a downturn in the economy, but it will also improve your prospects of getting a raise or advancing up the corporate ladder.
Don’t succumb to lifestyle creep if you follow step one and boost your income (where you start spending more as you earn more). Do the polar opposite instead. With economic uncertainty looming, now is not the time to go big. Instead, seek for ways to cut back on your spending. Look for ways to cut your utility and insurance payments, cancel unnecessary subscriptions, and stop buying new just because you can (you don’t need the latest cell phone model, for example).
Use the extra money you’re earning and the money you’re saving to cut back on your expenditures to pay off your debt. “Debt is an issue even when the economy is prospering,” Forbes writes. It’s an even bigger concern during recessions, when you may be facing the prospect of losing your job or seeing the value of your investments plummet.” You’ll have a higher chance of surviving the Great Depression if you have less debts.
You must also develop your savings in addition to paying off your debt. Many Americans, however, do not have an emergency savings account. If another depression strikes, having an emergency fund will go a long way toward ensuring your family’s safety.
Avoid placing all your eggs in one basket when it comes to income and savings. Diversify instead. This is not only how the majority of millionaires become millions, but it is also a sound financial approach. For example, if your company closes during a recession and that is your main source of income, you will lose all of your savings. You will have other means of survival if you start a side hustle now or make savvy investments (such as sin and comfort stocks, gold, or precious metals).
Many Americans are unconcerned with living over their means. “Experts believe that being in a persistent scenario of having little or no emergency funds is unpleasant, and even harmful,” according to U.S. News (let alone adequate retirement savings).
But, like the partially shut down federal government, which relies on borrowing to keep afloat and threatens another credit downgrade if the closure continues, economists believe Americans are unable or unwilling to live within their means. Credit is much easier to obtain and has evolved into a convenience rather than an emergency solution, according to experts.”
Many Americans use credit cards or bank loans to “buy” expensive cars, designer clothing, and luxury vacations that they can’t afford but convince themselves they can because they have a credit card.
People nowadays frequently use their debit or credit cards for all of their purchases. We shouldn’t invest all of our money in one bank, as the Great Depression demonstrated. That doesn’t imply you should hurry to the bank and deposit your whole savings account under your mattress. Instead, make it a priority to keep emergency funds on hand at all times.
Growing your knowledge base will not only make you irreplaceable at work, but it will also aid you at home if you experience a Greater Depression. Start learning about common household replacements and do-it-yourself solutions, for example. You won’t be able to buy things as readily or afford a handyman if a Greater Depression happens. As a result, it’s a good idea to learn as much as you can on your own.
Food and clean water will be among the first items to run short during the Great Depression. When things do return to stores, they may be rationed or at excessive costs. During the coronavirus scare, we witnessed this personally. Because natural calamities and economic turmoil are always a possibility, it’s a good idea to stock up on long-lasting emergency food and water purification equipment.
In the same way, start thinking about nonperishable things that would likely rise in price owing to inflation if a slump occurs. Consider what individuals bought in a panic in 2020 and hoard them now. Toilet paper, for example.
In 2021, where are we in the business cycle?
The US industrial economy is in Phase D, Recession, based on the current position of the 12/12 rate-of-change, which comes as no surprise. Today, however, I’d like to concentrate on where we’re going rather than where we’ve been.
Although the Production 12/12 has yet to reach a low, the 3/12 is growing and has overtaken the 12/12. This positive ITR Checking PointTM indicates that a shift to 12/12 increase and a new business cycle phase is approaching.
As we approach 2021, we estimate that US Industrial Production will enter Phase A, Recovery. This business cycle phase will most likely represent the first half of the year before the next transition, and Phase B, Accelerating Growth, will describe the rest of 2021.
While it is critical to comprehend what lies ahead, it is also critical that we take the necessary steps. We have strategies based on the approaching phases at ITR for you to consider. They’re known as Management ObjectivesTM. Here are a few examples, all of which were created expressly for the upcoming phases:
How much debt does America have?
“Parties in power have built up the deficit through increased spending and poorer tax collection, regardless of political affiliation,” says Brian Rehling, head of Global Fixed Income Strategy at Wells Fargo Investment Institute.
While it’s easy to suggest that a specific president or president’s administration led the federal deficit and national debt to move in a given direction, it’s crucial to remember that only Congress has the power to pass legislation that has the greatest impact on both figures.
Here’s how Congress responded during four major presidential administrations, and how their decisions affected the deficit and national debt.
Franklin D. Roosevelt
FDR served as the country’s last four-term president, guiding the country through a series of economic downturns. His administration spanned the Great Depression, and his flagship New Deal economic recovery plan aided America’s rebound from its financial abyss. The expense of World War II, however, contributed nearly $186 billion to the national debt between 1942 and 1945, making it the greatest substantial rise to the national debt. During FDR’s presidency, Congress added $236 billion to the national debt, a rise of 1,048 percent.
Ronald Reagan
Congress passed two major tax cuts during Reagan’s two administrations, the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986, both of which reduced government income. Between 1982 and 1990, Congress passed Acts that reduced revenue as a percentage of GDP by 1.7 percent, resulting in a revenue shortfall that contributed to the national debt rising 261 percent ($1.26 trillion) during his presidency, from $924.6 billion to $2.19 trillion.
Barack Obama
The Obama administration oversaw both the Great Recession and the recovery that followed the collapse of the mortgage market throughout his two years in office. The Economic Stimulus Act of 2009, which pumped $831 billion into the economy and helped many Americans avoid foreclosure, was passed by Congress in 2009. When passed by a strong bipartisan vote, congressional tax cuts added extra $858 billion to the national debt. During Obama’s two terms in office, Congress increased the national deficit by 74% and added $8.6 trillion to the national debt.
Donald Trump
Congress approved the Tax Cuts and Jobs Act in 2017, slashing corporate and personal income tax rates, during his single term. The cuts, which were seen as a bonanza for the wealthiest Americans and corporations at the time of their passage, were expected by the Congressional Budget Office to increase the government deficit by $1.9 trillion at the time of their passing.
The federal deficit climbed from $665 billion in 2017 to $3.13 trillion in 2020, despite the Treasury Secretary’s prediction that the tax cuts would reduce it. Some of the rise was due to tax cuts, but the majority of the increase was due to successive Covid relief programs.
The public’s share of the federal debt has risen from $14.6 trillion in 2017 to more than $21 trillion in 2020. The national debt is made up of public debt and intragovernmental debt (amounts owed to federal retirement trust funds such as the Social Security Trust Fund). It refers to the amount of money owed by the United States to external debtors such as American banks and investors, corporations, people, state and municipal governments, the Federal Reserve, and foreign governments and international investors such as Japan and China. The money is borrowed in order to keep the United States running. Treasury banknotes, notes, and bonds are included. Treasury Inflation-Protected Securities (TIPS), US savings bonds, and state and local government series securities are among the other holders of public debt.
“The national debt is growing at a rate it hasn’t seen in decades,” says James Cassel, chairman and co-founder of Cassel Salpeter, an investment bank. “This is the outcome of the basic principle of spending more money than you earn.” Cassel also points out that while both major political parties have spoken seriously about reducing the national debt at times, discussions and strategies have stopped.
When both sides pose discussing raising the debt ceiling each year, the national debt is more typically utilized as a bargaining chip. The United States would default on its debt obligations if the debt ceiling was not raised. As a result, Congress always votes to raise the debt ceiling (the maximum amount of money the US government may borrow), but only after parties have reached an agreement on other legislation.