In its latest economic update, Credit Union National Association (CUNA) questioned whether the U.S. is currently in a recession.
Gross domestic product (GDP) decreased 0.9% annually in the second quarter of 2022, marking the second consecutive GDP contraction – the common definition of a recession. This is better than its contraction of 1.6% annually in the first quarter, the Bureau of Economic Analysis (BEA) reported.
"It is very difficult to say that the economy is in a recession when you have a labor market this strong," CUNA Senior Economist Dawit Kebede said. "A strong labor market implies strong consumer demand."
Jobs increased by 528,000 in July, according to the latest employment report from the Bureau of Labor Statistics (BLS). This was significantly more than what was previously forecasted and recovered all of the jobs lost during the pandemic, Kebede previously said.
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Economists debate recession definition
Before the latest GDP numbers were released, the White House Council of Economic Advisors said that even if the GDP report is negative, it's "unlikely" to indicate a recession. Typically, economists consider a recession to be after two consecutive quarters of negative GDP growth. But the White House said that may not be the case in this instance.
The National Bureau of Economic Research defines a recession as "a significant decline in economic activity that is spread across the economy and that lasts more than a few months." The bureau will typically wait as long as a year to declare that a recession has begun.
And as CUNA economists analyzed the latest jobs report, they've questioned the possibility that the economy is currently in a recession. The group pointed out in its economic update that even rising inflation is due primarily to oil prices.
Citing June inflation numbers, Kebede said that "prices have increased 9.1% year over year and on a monthly basis that increase was 1.3% from May to June."
"That's really a very big increase," he continued. "However, energy prices have contributed to half of the increase during that time. If that was not the case, inflation would have been half of that."
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Fed likely to continue raising interest rates
Despite the recession debate, the Federal Reserve is likely to continue raising interest rates through 2022 and 2023 as it fights to bring inflation back down.
At its most recent meeting, the Fed increased interest rates by 75 basis points. This marked the fourth time this year that the central bank raised rates and brought the target range for the federal funds rate to 2.25% to 2.5%.
CUNA projected that the federal funds rate will reach 3.15% by the end of the year and 3.25% by next year. It also projected that the unemployment rate will remain steady at 3.6% this year before inching up to 4% in 2023.
As the Fed continues to raise rates, interest rates for auto loans, home loans and credit cards, as well as other loan products, will also rise. If you want to take advantage of interest rates now before they increase, you could consider taking out a personal loan to pay down high-interest debt. To see if this is the right option for you, you can contact Credible to speak to a loan expert and get all of your questions answered.
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