Is The U.S.A. Heading For A Recession?

There is a lot of talk at the present time as to whether the economy of the United States is going to enter a recession any time soon, and we have previously covered this question quite recently. There are only two reasons for the debate: firstly, because the major U.S. stock market index, the S&P 500, has fallen by more than 12% in value since the start of the year; secondly, because the United States has not been in a recession for about 5 years now and it tends to be an event that is expected to happen every few years as part of the natural economic cycle within a capitalist system.

Before we look at the question as to whether the U.S. is heading for a recession, we should first explain what a recession is.

What is an Economic Recession?

The widely accepted definition of an economic recession is when a country’s economy experiences two consecutive quarters of negative economic growth as measured by GDP (Gross Domestic Product). As soon as there is a quarter with positive economic growth (i.e. positive GDP), the recession is deemed to be over.

The chart below shows U.S. GDP growth by quarters over the past ten years:

We can see that there have not been two consecutive quarters of negative GDP since the start of 2009, six years ago. The most recent quarterly GDP was reported at about 2%. Although the chart does seem to show GDP tailing off somewhat, it looks as if we have some way to go before we will spend two quarters in negative territory.

Fundamental Factors Which May Decrease GDP

Perhaps the current fear is due to a valid concern that economic fundamentals are looking poor, and may shortly drag the GDP into negative territory. Let’s take a look at the areas of greatest concerns. The Federal Reserve has embarked upon a course of fiscal tightening, which will raise the cost of borrowing, dampening demand and investment. However they have stated they are going to raise rates very sensitively.

Consumer sentiment is actually rising and has been for a while.