A recession is characterized by a period contraction in the economy where production, consumption, and employment decrease. Lately, around the internet and on the news, you may be hearing about the incoming “recession” that will happen next year. It is debated whether or not this could be true; however, if it is, it could have massive implications on our daily lives. Let’s first look at the economic signs that indicate a potential recession.
Economic Signs
Inflation, or how expensive the prices of goods become in a certain period, has been at its highest in over 40 years, at 9.1% as of June 2022. The increase in prices is the reason many economists are predicting a recession in 2023 or 2024. Demand is rising much faster than the ability of our economy to support itself. The Fed’s solution is to raise interest rates to discourage spending, thus decreasing demand.
Now, the root causes of the recent inflation are considered to be COVID-19 and the Russian invasion of Ukraine. The pandemic has shocked the entire global economy, freezing consumer activity and driving millions into poverty. This has led the government of the United States to give stimulus packages to its people. Furthermore, China’s new wave of COVID-19 lockdowns has shut down many factories, further impacting the American economy by making Chinese-made products more scarce. The crisis in Ukraine has caused a supply shock, further exacerbating the issue of inflation. The price of food and oil has skyrocketed in the past few months, with oil being as expensive as $100 per barrel in the United States.
Economic analysts at S&P and Morgan Stanley put the chances of a recession at 40% and 35% respectively; however, these numbers can change drastically with the turbulent world situation. Whether or not we have a recession depends on if inflation goes up or down depending on these world events. For example, if the war in Ukraine somehow concludes and terms are reached with Russia to reduce sanctions and reduce oil prices, inflation would decrease. The Fed would relax its interest rates, subsequently reducing the chances of a recession in the next two years. If the Fed continues to keep a high interest rate in the coming months, then you should expect a recession soon.
Impacts
The most immediate effect of a recession is that more people would become financially unstable. Within the first few weeks, millions would go unemployed, and the ones who are still employed would face lower wages. In time, these people could fall into poverty. In a recession, economic investments would be lost, with stock prices plummeting, and economic opportunity would be scarce. Despite this, such effects are short-lived. Recessions last only six to twelve months, and government programs would be put in place to help people hit by the recession.
Furthermore, a recession can have massive impacts on future college students. Because universities would face increased expenses, they would increase tuition prices. Surprisingly, according to an analysis by the National Economic Bureau of Research, college enrollment actually increases during times of recessions. As unemployment goes up, many of the unemployed desire to increase their job prospects by acquiring complex skills.
The events in the coming months will be crucial in determining our economic condition in the coming years. With a sizable chance of a recession, there will be massive implications for billions across the planet.
