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Let’s Not Talk Ourselves into a Recession

Recession – what recession?

Even before the sun rose in Silicon Valley Thursday morning, the US Department of Commerce announced second quarter 2022 GDP had contracted at an annualized rate of .09%, the second consecutive quarter of negative growth – a traditional signal of the start of an economic downturn – a (dreaded) recession, if you will.

But by 7 o’clock the princes and princesses of Silicon Valley were sipping $20 glasses of wine out of plastic cups while promenading and dancing away the last evening of summer music in downtown (toney) Los Gatos.  There were no, zero, outward concerns about a slowing economy.


These summer evening revelers had spent the day producing economic activity rather than listening to the stampede of experts on all things economic rushing to the microphones and keyboards to pontificate:

  • Is the USA in recession?
    • Well that depends if the economist believes the GDP number – .09% negative or the gross domestic income number 1.8% positive – which in theory should be two sides of the same coin. In the current quarter the average of the two turns to be roughly zero.
  • Will the USA soon be in recession?
    • Before the November mid-terms?
    • By the end of the year?
      • In 2023?
      • Or the first half of 2024?
  • How will third quarter GDP be impacted by Wednesday’s Federal Reserve interest rate “hike” of 75 basis points?
    • Going to slow the economy just enough to beat down annualized inflation to just under a sustainable 4% (annualized)?
    • Or will it be too large a correction — increasing the likelihood of recession ahead?


Don’t take my word for it, that’s a direct quote from Obama era Chairman of the White House Economic Advisers Jason Furman.

A statement of refreshing candor and realism from an economist.

Furman explained his conclusion — during an appearance on CBS Face the Nation. The unique economic circumstances of the past two years make it difficult to predict how the economy will perform going forward:

  • 100 year pandemic
    • $4.5 Trillion government stimulus was pumped into the economy by Congress in 2020 and 2021 to keep businesses and consumers afloat.
    • Aggressive action by the Federal Reserve to maintain money supply and consumer confidence.
    • Rapid contraction of the economy as pandemic set-in followed by a rapid “snap back” of employment and spending as restrictions were lifted.
  • Differing national responses to the global pandemic continue to interrupt complex transnational supply chains. Logistics patterns past, present and into the future have/are/will change.
  • The unexpected outbreak of war in Central Europe and NATO’s intense response have led to global shortages of food stuffs, fossil fuel, global transport and munitions. As demand exceeds supply prices are rising.
  • Flight to the US dollar from a basket of developed country currencies – has driven the dollar to unprecedented levels
    • Increasing the cost of goods around the world –
    • Making US exports more expensive and, in turn, reducing demand.
  • Mother Nature coupling disease with natural disasters of heat, cold, wet and dry – in a phrase: “climate change” causing economic and social disruption.
  • Unprecedented flow of refugees from war, climate and political instability cannot be absorbed quick enough – in USA and in Europe.


There is just no available economic model similar enough to our recent past and current reality to reliably predict the near or medium term future.

All of us: employees, entrepreneurs, industrial titans, politicians and consumers need to proceed with caution until a clearer picture emerges to guide our purchasing, saving and investment decisions.

Flashing caution lights ahead are realistic but warnings of economic catastrophe appear to be too pessimistic.

While second quarter earnings reported are “healthy”; they’ve have fallen quarter over quarter as the economy is decelerating.

Following almost a year of post-pandemic “snap back” isn’t a slowing of geometric economic growth to be expected, deflationary and realistic?

Economic realism may not be politically “sexy” in the run-up to the midterms, but may well prevent the economic ship from crashing on the breakers, while pessimism could sink it on the rocks.


In a period of potential economic (and geopolitical) uncertainty, pessimism is avoided by planning.

Planning begins with assumptions:

  • Long-term success (a sustainable business) is based on profitability (the bottom-line)
  • If the top-line (revenue) number declines, the cost of revenue must decline in ratio (and vice versa).

When the future remains as murky as the recent (complex) past, sustainability means “being ready for anything” – planning for what is expected, anticipated, or unanticipated.

When the unanticipated happens, it’s too late to “make a plan” to survive it!

Recent headlines pointing to slower hiring in the technology sector as a harbinger of doom are dead wrong. It’s a plan to protect current and long-term investments in anticipation of falling revenue as the economy decelerates.

Equal, if opposite, Amazon and Shopify announcements of layoffs are not a harbinger of doom. They reflect a failure to test management’s planning assumptions during the COVID crisis. Recently departed managers never asked themselves “what if” the geometric growth of online shopping was driven by COVID fears and lockdowns not changing consumption patterns?

Consumers are social animals. Shopping malls are hubs of social activity. It’s as simple as that!


The national goal remains to manage inflation down to an annual average of under 4% this year without tipping the total economy into recession.

Hiring patterns, a positive manufacturing index report in Q2, and reasonable action by the Federal Reserve indicate that is an achievable goal.

The path to get there will not be straight and swift but rather a roller coaster ride that must be managed realistically and conservatively over time.

Every quarterly and annual plan must include the assumption the unexpected can and probably will happen.

Planning for the dips can mitigate loose talk of recession from becoming a self-fulfilling prophecy — slowing the dance to a limp.

2022-08-01T20:21:31+00:00August 1st, 2022|Comments Off on Let’s Not Talk Ourselves into a Recession

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