Episode 4
Episode summary
Everyone worries about recessions. Whether one is coming, or is already happening, or if it’s over. But can we really know if one is happening? If so, how? And what about all the experts that try to predict them? Do they really know more than us? Liz Wilke walks you through it.
Shownotes
Current economic conditions by state [Gusto]
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Transcript
Liz Wilke (00:00:00) – Hi, I’m Liz Wilke, and this is the Gustonomics Podcast.
Liz Wilke (00:00:04) – Each week, I bring you about 10 minutes of economics knowledge so you can be more informed, use the information in your business or work, or maybe just impress your friends at the bar. Whatever brings you here, thanks for checking out the podcast.
Liz Wilke (00:00:17) – This week, I’m talking about recession, not related to hairlines. Recession is a really common word that pretty much everybody knows or has heard about but isn’t well understood. Honestly, even by lots of economists. Basically, a recession is a broad economic downturn. In a recession, unemployment tends to go up and GDP tends to go down. And everybody pretty much agrees that it’s not as good as an economic expansion, where there’s lots of jobs, lots of activity, and lots of spending. But beyond that, a recession is actually pretty tricky to measure.
Liz Wilke (00:00:52) – It’s hard to know when we’re in one, and there is not a completely defined definition for a recession. You might have heard people say that a recession is two or more consecutive quarters of negative GDP growth, but that’s not an official designation. In fact, a committee of economists at the National Bureau of Economic Research is responsible for identifying a recession. They get together. They look at a bunch of indicators, like GDP, production, income, and unemployment.
Liz Wilke (00:01:22) – They have a good chat with each other, and then they tell us when a recession has started.
Liz Wilke (00:01:27) – Usually after it’s been going on for a while. And then they do the same thing and tell us when a recession has ended. Usually after it has been ended for a while. So why do we care so much about whether or not we are in a recession? When you zoom out, it matters. We’re either in good times or not. But we don’t need the label of a recession to know if we’re in good times or not. A recession is a bit like the weather this way. If there’s a 50% chance of rain, that means somebody will see rain and another person will not.
Liz Wilke (00:01:59) – And if it rains on you, how wet you get won’t depend on the forecast, but whether or not you’ve brought an umbrella or even have to go outside at all that day.
Liz Wilke (00:02:08) – That’s all to say that the talk about whether or not we’re in a recession or exactly when the recession happens is, from the perspective of a person trying to live their life, largely arbitrary and pretty academic. There are either plentiful jobs for you or there aren’t. You have money to spend or you’re tightening your belt. You and your neighbors are anxious about your prospects or you feel comfortable.
Liz Wilke (00:02:32) – People can feel this way whether or not there is a recession. And people can not feel this way even if there is a recession.
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Liz Wilke (00:03:16) – Welcome back. I’m talking this week about recessions and what they mean for people. One more thing to note about recessions. A recession is an indicator for the entire economy. In a big economy like the United States, that high-level number can mask a lot of things going on in different ways in local areas or specific industries. The whole economy can be technically healthy or not in a recession while a single industry suffers or a single region struggles to grow.
Liz Wilke (00:03:46) – So what’s a useful way to think about recession talk when it shows up in our headlines seemingly every day? Well, first, recessions are notoriously hard to time.
Liz Wilke (00:03:57) – And also talking about a recession doesn’t mean one will actually happen.
Liz Wilke (00:04:02) – As I often say, the economy is a bunch of people doing their thing with other people. If people aren’t feeling a recession, we probably won’t have one just because commentators say we will have one. And it doesn’t really matter, as I said, whether or not we are in a recession specifically. Instead, you pay attention to whether the conditions around you are looking, quote-unquote, recession-ish.
Liz Wilke (00:04:28) – Are jobs expanding in your area or contracting? Is production going up or going down in your industry? If you own a business, are orders coming in faster or slower than you expect for this time of year?
Liz Wilke (00:04:40) – Taking a look at local data can help you get a sense of how things are going in your area. Many companies are starting to put their private data into the public so people can have access to more information about the economy quicker. Gusto is actually one of those companies. I’ll leave a link in the show notes to a few places you can go to get recent economic data for your local area or industry. Also remember that recession is a word that generates clicks and headlines. So lots of commenters use it to drive emotions.
Liz Wilke (00:05:11) – And it’s also really common to start talking about a recession even two years before one actually happens because that’s how far in advance economists’ best indicators start to signal that one could happen. So it’s not only hard to predict when a recession is happening, it’s also really hard to predict when a recession is going to happen. And people can feel like they don’t have as much opportunity outside of a recession. And also they can feel like they have a lot of opportunity even if a recession is going on.
Liz Wilke (00:05:41) – So my advice is at the end of the day, don’t worry too much about whether or not we are or are not in an actual recession, but pay attention to how those things are trending in your areas or industry and what the opportunities are for you.
Liz Wilke (00:05:56) – That’s it for this week’s episode. I hope you learned something new and useful for yourself and your business. Please let us know what you think about the podcast by leaving a review or share it with a friend or colleague who might enjoy it. I’m Liz Wilkie. Thanks for listening. See you next week.
Caleb (ad) (00:06:13) – The Gustonomics Podcast is made possible by Gusto, the people platform for over 300,000 businesses across America. If you’ve started a business and are ready to hire your first employee or you’re just looking for an easier way to run payroll, visit gusto.com slash podcast to get three months free. That’s gusto.com slash podcast.
