What’s All This Talk About a Recession?

Ernie Neve, CPA

April 23, 2020

There’s a lot of talk these days about the economy slipping into a recession and while we are undoubtedly in a downturn, the simple fact is, the pandemic that we are battling has no precedent in modern times. 

Business is often slow to react, while investors are often extremely reactionary.  The results, in this case, are a lot of worry, a lot of “paper” money lost, and a scarcity mindset amongst people in the media who are paid to make people worry.

Yes, we’ve all seen losses but what do you really know about a recession?   What, actually, is a recession? 

Let’s take a look…

First of all, there are a lot of ways to define “recession.”  As a general rule, two quarters of combined GDP contraction is the “unofficial” definition, but employment figures and domestic production are generally used “behind the scenes” to create a rough snapshot of when a recession begins or ends. 

Sure, right now, there is no reason to believe that, based on the calendar, we’re not in a recession – the crisis hit at the end of quarter one and is culminating in quarter two.  The real story, though, is that the United States takes a while to get turned around.  Imagine an aircraft carrier – it takes miles to actually turn around and change course, and our economy is no different.  Jobs are coming back – or are going to be, especially as Chinese production for many goods has been halted due to importation restrictions.  The weather in many parts of the country is cooperating, too.  Farmers have missed little in the way of planting time and somebody’s got to plant the crops. 

On average, though, in modern times, a real recession last less than a year – around 11 months.  Think about that.  How fast did the COVID crisis seem to occur?  Let me remind you – the day Kobe Bryant’s death was reported (January 26) was the first time I remember seeing an article about the virus in Los Angeles. 

Yep.  That’s right.  Nearly three months ago. 

It’s going to pass quickly, so stay focused and positive. 

With that timeframe in mind, it’s also important that we haven’t officially recorded a recession in nearly 10 years – so by that measurement, we’re overdue for a correction.  Our economy generally contracts every 4-5 years, then comes roaring back. 

The important thing to realize right now is this:  yes, times are tough and we all have a lot of questions.  My team and I are here for you, but more importantly?  This is going to get better.  In fact, there is evidence every day – if you choose to hear it – of all the progress we are making in the battle against the coronavirus and the return of “normal” to our lives. 

Reject the bad news, embrace the good news, and keep doing the right thing.  This is all going to work out for us and we’ll come out on the other side – far stronger. 

Stay safe, my friend-

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