Oct 7, 2022
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
- 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
- 12:30 - Another leading indicator of a recession is Housing
depending on their clients. 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
- 16:40 – Inside the 401k retirement plans they tell investors to
look at rebalancing their portfolio, or perhaps increase their
Three Key Points
- 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.
- 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.
- 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-year low. 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
- “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
- “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