Is This Recession Rolling?

| February 17, 2023

One of the benefits of getting older is that it’s easier to say “I don’t know” than it used to be. So when a client asks me about where the economy is headed, I have no problem saying I have no idea.
I suspect we’ll have a recession of some sort and am trying to prepare for it. But now I’m wondering whether we’ll even be able to agree that we’re in one. Many people define a recession as two consecutive quarters of negative gross domestic product, and by that measure we entered a recession in summer of last year. But the National Bureau of Economic Research, which is part of the Department of Commerce, must not agree. The NBER’s definition of recession is a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” And the NBER business cycle webpage does not list a recession for 2022.
What’s more, economists are grappling with conflicting data. Earlier in 2022, people were preparing for the worst. Then later last year, expectations tuned more moderate. And more recently, economists have started talking about a so-called rolling recession.
A garden-variety recession hits the entire economy at about the same time. Economic activity falls, unemployment increases, consumer spending decreases.
A rolling recession, however, affects cyclical downturns that affect specific industries while others are still growing. Industries and sectors essentially take turns going into cyclical downturns. Meanwhile, the overall economic numbers still look OK.
Last year we saw the housing industry enter a significant downturn, then manufacturing and tech. But unemployment levels held steady last year and consumers kept spending.
Though the concept of rolling recessions seems new, they’ve been around. In the mid-1980s, we had a downturn in the oil industry when prices plummeted as well as a recession in the commercial real estate market. But the economy as a whole held up.
And that’s what we’re hoping for this time around. If it’s a rolling recession, the best scenario is for it to continue with a downturn in the service sector, according to Charles Schwab analysts in an interview with Bloomberg. That would allow a strong job market to recede while the housing and manufacturing markets recover.
Whether this will happen is questionable. Some are still concerned about the worst scenario, of inflation remaining high and the Federal Reserve pressuring the economy into a forced landing by continuing to increase interest rates. But the alternative scenarios seem more possible. In a recent poll of economists by the World Economic Forum, two-thirds said they’re expecting a recession this year, but many believe it will be a pretty mild one.
So overall, I haven’t really changed my approach to this year. With investments, I like to focus on quality during these times. A generally more cautious approach mixed with the usual practice of regular investing and following sound investment principles can lead to prosperity during the recovery.