In today’s episode of the “Inside the Plan with the 401(k) Brothers”, host Bill Bush and Andy Bush, advisors at Horizon Financial Group take a look at the anatomy of a Recession, define what it is, what causes it and what are some of the traits around it.
· 01:30 – Recessions are not identified until they have passed and they've started to pass and leave. So it's kind of a look back to see when, and what causes the recession.
· 03:15 - Recessions are not rare they can occur several times during your lifetime.
· 05:05 – As companies maximize things, employment improves, and so employment has been pretty darn good during the pandemic.
· 07:30 - Interest rates increase and so you see contraction on the credit side of things.
· 09:55 - When it comes to the market, views of the economic activity expansions and contractions are important because it affects your portfolio.
· 11:15 – One of the indicators of recession is unemployment. When unemployment rises, it can lead to a decline in consumption, people going out, buying things, and then that affects the business output.
· 12:30 - Another leading indicator of a recession is Housing Housing stocks are growing but they're not growing at a bigger rate than they used to.
· 14:30 – In case of uncertainties the first thing is that these things happen, so recognize that throughout your life as it is part of life.
· 16:40 – Inside the 401k retirement plans they tell investors to look at rebalancing their portfolio, or perhaps increase their contribution.
Three Key Points
1. The recession is when you see a declining gross domestic product over a period of a couple of quarters. When people lose their jobs, they're not spending as much, so then you start to see the revenues and earnings of companies coming down. There is a significant decline in economic activity that is spread out across the economy lasting more than a few months, and when you see the GDP drop real income, employment, industrial production, etc.
2. So the most recent grant that came out on inflation was really some areas came down, but some of the more critical areas like food, that everybody needs, we're going up. It's good because typically, as profit margins peak and companies are not making as much profit, they start to in the very layman’s sense trim the fat. They start to let some folks go who are not necessary or critical, and hence they lose their jobs. So what happens when the recession hits low economic activity? You start to see the slowdown and people start losing their jobs.
3. When you look at the consumer’s confidence in the economy when that bottoms out, there's a recession. Unemployment was about a little over five months ahead of a recession. So far, unemployment is at its nearly 50-yearlow. So on consumer confidence, it's really about three months before a recession, there has been an instance in the past where it had a double bottom so that could be something that we encounter this year.
· “One of the words we've heard a lot about is uncertain and recession.” – Bill Bush
· “So,we've already seen a couple of quarters of negative GDP.” - Bill Bush
· “The pandemic was a kind of a rare type of situation and in that, everything was halted in the sense for a good while.” – Andy Bush
· “So you start to see the labor market, start to tighten up, and then central bank policy starts to tighten too.” – Andy Bush
· “You start to see expansion GDP growth is positive so that gross domestic product is positive.” - Andy Bush
· “The leading Economic Index is also there when it's declined at least 1% from the previous year, about three and a half months later you start to see a potential of a recession.” - Andy Bush
· “Let’s stay calm, especially if you're fairly young and have a long career ahead, you got to think of the long-term perspective.” – Bill Bush
· “Recessions are natural they happen and they happen every business cycle.” - Bill Bush
· “If you have some worries and fears, we always say worry with us, don't worry alone.” – Andy Bush
· Horizon Financial Group: Website
· The Runway Decade: Website