Welcome to the first installment of FAQ’s and RAQ’s!
Here we answer client questions -- some asked Frequently, and others asked Rarely!
FAQ:
Is the U.S. economy in a recession – or – are we headed for a recession?
The answer to this question depends on the definition of recession!
First, let’s note what recession does not mean. Recession is not synonymous with “bad” or “disappointing.” Recession means that the economy is receding or contracting. Thus, although many Americans are downbeat on the state of the economy, that does not mean we are in a recession.
So, what is a recession?
There are two common definitions.
The first is a technical one: two or more consecutive quarters of falling GDP. Based on this definition, the U.S. experienced a recession in the first half of 2022. However, many economists do not consider it to be a genuine recession because the unemployment rate stayed low.
A second definition economists use is “a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and retail trade.” By this definition, the economy is not in a recession today. Although there are pockets of weakness, the overall economy, and especially the jobs market, is still growing.
So, will a recession occur in 2023?
That will depend on the Federal Reserve, and how aggressively it raises interest rates. If the Fed raises rates too far or too quickly, it could spark a downturn.
However, there is reason to believe a recession would be mild. Large-scale layoffs seem unlikely during a labor shortage. Additionally, households and businesses still have rainy day funds that were set aside during the pandemic that could cushion the blow of a downturn.
Importantly, if the severity of the recession is limited, then the stock market fallout should be limited too.
RAQ:
How will the Santa Shortage affect Christmas?
It’s true! There is a Santa Shortage as workers are in short supply across many regions of the world – even the North Pole!
According to the International Brotherhood of Real-Bearded Santas (a real organization of professional Santas!) there are not enough Santas to make all the stops this year. The organization’s ranks have fallen to 1,400 from more than 2,000 before the pandemic. In fact, the shortage is so acute that last year a Pennsylvania state lawmaker proposed a new tax credit for freelance Santas.
As economic theory would predict, the Santa Shortage has led to another phenomenon: Santaflation! According to the International Brotherhood, Santas are charging between 10-15% more this year. Some Santas now earn more than $10,000 in a holiday season.
The silver lining? Santa has plenty of elves. And with unemployment low and wages rising, this year’s Christmas shopping season is expected to be a good one.