What is a “recession?” Are we in one? Is there one coming?

A recession is defined as two consecutive quarters of declining GDP.  Because of inflation and population growth, it rarely ever happens.  Even if the economy is stagnant, inflation (let’s assume 3%) and population growth (assume 1%) will combine to make the GDP grow at a rate of 4% per year.  A much better definition would be two consecutive quarters of GDP growth that fails to keep pace with the combined effects of inflation and population growth.  By that standard, recessions are much more frequent.  By the classical definition, we’re not in a recession but, by the standard I’ve just proposed, we probably are.  (It sure feels like it, doesn’t it?)  But sticking with the classical definition, is a recession coming?  I believe there’s a high probability of that.  All of the recent bad economic news (skyrocketing oil prices, the falling dollar and a credit squeeze) comes at a time when corporations are setting budgets and capital spending plans for next year.  Based on my experience in the corporate world, I can almost guarantee you that corporations are cutting capital spending plans and trimming budgets.  When that happens, a recession becomes a self-fulfilling prophecy.  It’s almost inevitable.  So plan accordingly!

Pete

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