NORFOLK, Va. - We're starting to hear a lot about a potential recession in the U.S. economy, most recently from Wall Street billionaires like Carl Ichan and Bill Gross. To help us understand what this means, our financial expert, Carl Carlson, founder and CEO of Carlson Financial, helps us break it down.
Carlson explained how we can know if we are in a recession.
Although we are starting to hear talk of a recession looming, Carlson says it's interesting to note that the Federal Reserve Chairman Jerome Powell doesn’t believe so. Carlson says there are several different definitions when it comes to determining if we are in a recession, with probably the most common one is two consecutive declining quarters of Real GDP.
But that hasn't happened quite yet, he says.
"Last quarter, the real GDP was 7%, but most expectations are around 2% or lower for the end of the first quarter of 2022, and many believe it will be even lower for the second quarter of 2022. The first estimate for the first quarter of 2022 will be the Advance Estimate on April 28," Carlson explained.
What seems to be the leading causes of this? Carlson says another predictor that economists use for a recession is an inverse curve in US Treasuries. This happens when short-term - say, two-year Treasuries - are paying more than 10 year treasuries.
"Since 1955, an inverted yield curve has predicted a recession every single time except one. And, often times inflation is a leading indicator especially when accompanied by rising interest rates, both of which we are seeing currently," Carlson said.
When asked about his "crystal ball saying," Carlson said this is likely.
He said the average recession lasts 11.1 months, and often by the time the National Bureau of Economic Research (NBER) figures out the start of the recession, it's nearing the end.