We are in a recession now

The GDP decreased by 1.6 percent for the first half of 2022. This is understandable. The price of everything has increased as well as the interest rate. It is more expensive than ever to start a new business or try to grow a young currently operating business.

It will continue to get harder to open new businesses as the interest rate continues to increase. The cost of loans go up. The number of qualified borrowers goes down.

The supply chain is also a mess. It would be more difficult to start a new product business if you cannot get anything manufactured, because of the supply chain backlog.

You could start a service business, but there is a shortage of workers.

Decreasing Gross Domestic Income.

The amount of money that workers are receiving for their efforts is slowing down. It is still in positive territory, which good after the pandemic. But the velocity is decreasing. Wages are no where near keeping up with inflation. Companies are putting more money toward raw materials than employees.

Companies are also trying to control costs and one of the ways they do that is by not hiring new employees, laying off current employees and not giving raises to existing employees.

We all know about this one!

Oil, food, cars, travel, housing. The cost of everything is still increasing at a rapid pace.

The longer inflation lasts the more wealth will be destroyed among the middle and lower classes. It will take years for traditional supply chains to be reestablished. China manufacturing. Russia oil. The strength of the dollar. This all puts pressure on high inflation.

Some stores already have an inventory problem. Target and Walmart both have too much inventory. So they will discount some of their products.

New cars are still in limited supply and will be for some time.

The loss of Russian oil along with the reopening of society will keep demand for oil high and the price high.

As the interest rate increase people will not be able to afford as many goods, which should increase inventory and bring down demand and inflation. But there is no timeline on how long that will take or how high the interest rate needs to go.

The labor force participation rate continues to decrease. In 2022, it will decrease from 63% to 61%. More people are dropping out of the workforce than than ever. This also looks to continue as baby boomers age.

There is a bright side, which is that the population is increasing which means that the total numbers of people in the workforce continues to increase slightly.

But this puts pressure on the existing workforce. The existing workforce must become more productive in order to service the number of people not working.

There will always be a set number of people that do not work. Children, students, new mothers, retirees

But there are also more and more people that are of working age that choose not work.

More technology and automation is not a bad thing. Existing workers need all the help they can get to service the growing population. Workers with specialized skills should be more valuable than ever.

Look at the travel industry.

During the pandemic lots of workers were either forced into retirement or voluntarily retired early. Now there are not enough workers. Airlines should have done the math and cut routes, but instead tried to use existing crews to fill more routes than humanly possible.

As the recession continues companies with increase the velocity of employee layoffs and the participation rate will continue to decline.

AKA the stock market.

In 2022, about 60 million people have a 401k account. These accounts are primarily invested in mutual funds in the US stock market.

People use 401k funds for a variety of purposes. They are supposed to be reserved for retirement, but many people find themselves dipping into this account for large purchases like homes, cars and healthcare.

99% of employees are dollar cost averaging into this account. Well the stock market has decline considerable so the money they are consistently putting into the market is decreasing in value. Pretty much all of the gains from 2020 has been wiped out. Worse if your are focused on the tech sector.

These accounts will continue to receive dividends, but the value of the account is likely to continue decreasing as the interest rate increases and the recession gets worse.

In 2021, the poverty rate was 12.5% of the US population = 41,250,000 people living below the poverty line. In 2022, it is now 14.4% = 47,520,000 people.

If companies start to lay off people rather than pause hiring that number will continue to climb. As the interest rate increases and inflation continues to impact that the housing market, that number will climb. The saddest part of that number is that a good portion of that number are children who are unable to change their economic fortunes.

In 2022, $15.84 trillion. Up $266 billion for the quarter. The biggest factors for this number are mortgages, student debt, car debt and credit card debt.

As the interest rate increase so will this number the cost of debt will get more expensive.

Sometimes perception is not reality. But many times perception creates reality. If consumers are fearful about the future they will save more rather than spend more. This done in mass means a slower economy. Companies need less workers.

People are watching inflation, the interest rate, the stock market. They are not very hopeful on the economic front. Why would you be when you are watching your wealth erode?

But they just went through pandemic and they do not want to stay home anymore. So for now they are continuing to travel and go to restaurants and meet friends. But depending on how long this situation lasts will determine the severity of the recession.

Real average weekly earnings for workers is decreasing month over month.

This should probably be first on the list.

The higher the interest rate goes the wider the inequality gap becomes.

A rising interest rate hurts people at the bottom the most. Specifically the cost to borrow money in order to purchase a home. The loan becomes more expensive. Borrowers no longer qualify for these loans at banks. That leaves people renting rather than building equity.

I am not promoting buying a house just to build equity. There are a lot of reasons to rent.

But rents are also increasing dramatically right now. In our parents generation there was plenty of affordable housing to buy and build equity in, but not anymore. It is a battle to find any house, let along an affordable one.

The higher the interest rate the more difficult it will be for people to build wealth. Until the rate gets high enough.

There was a time when interest rates in the US were 10% and higher. Individuals could put money in the bank and would get a nice return on their savings. But right now interest rates are not high enough to get anything of value from their savings accounts. Workers are kind of stuck.

They cannot afford a house. The stock market is declining. The value of their cash in the bank is declining.

The demand for housing is still there. People want to buy, but they do not qualify because it is too expensive.

We will probably stay in a recession until rates start to come down.