There has been a heated semantic dispute among politicians, financial analysts, and market experts over the impending recession in the U.S. economy in mid-2022. Ultimately, the definition of the recession became a political point of contention. Generally, recession refers to two successive quarters of negative gross domestic product. According to this definition, the U.S. entered a recession in the summer of 2022.
The National Bureau of Economic Research (NBER) defines American economic cycles and has a different perspective. It defines a recession as a widespread and persistent drop in economic activity lasting over a few months. That means there was no recession in the United States during the summer of 2022. However, an economic slump may likely happen soon. The Federal Reserve is committed to maintaining high-interest rates until inflation declines. That could lead to a drop in economic activity that is difficult to deny as a recession.
The Great Recession Period
The Great Recession, a period of economic hardship that began in late 2007, significantly impacted unemployment rates. As the economy contracted and businesses struggled, millions of Americans lost their jobs. The unemployment rate increased from a pre-recession low of 4.4% in March 2007 to a peak of 10% in October 2009. The severity and length of the recession meant that it took several years for employment levels to recover.
One of the primary reasons for the high unemployment rate was the decline in consumer spending. As people faced financial difficulties, they cut back on non-essential purchases, decreasing demand for goods and services. That, in turn, led to businesses reducing their production, laying off workers, or closing altogether. The housing market also played a significant role in the economic downturn, with the collapse of the subprime mortgage industry resulting in a housing bubble bust. As foreclosures surged and home values plummeted, construction industries experienced significant job losses.
While the recession officially ended in June 2009, it took several years for employment levels to return to pre-recession levels. Unfortunately, the COVID-19 pandemic has interrupted the country’s steady economic recovery, causing another spike in unemployment rates.
How Recession Relates with the Job Market
With news of large-scale layoffs, especially in the tech industry, many are fearful of the current job market. During these widespread layoffs, it is important for employees to understand their rights. While these news stories may be alarming, the evidence shows the U.S. job market is still strong. Despite widespread economic uncertainty and worries of a further recession in the months ahead, the jobless rate has dropped to pre-pandemic levels and is lower now than a year ago. The consensus estimate for employment growth in the private sector in January was 188,000, while actual job growth in this sector was 517,000.
Initial Jobless Claims
Every week, the Labor Department releases new data on the number of individuals who have filed for unemployment benefits. Increases in the number of persons filing for unemployment benefits indicate a more widespread problem of job loss. Initial unemployment claims are at a nine-month low as of the last week of January, suggesting a healthy labor market. It is down from over 200,000 at the end of December, which was fairly stable throughout 2022.
Job Openings and Labor Turnover Survey
While the unemployment rate has been low, the number of open positions is down from a year ago but still much over its pre-pandemic low. In January 2020, there were around 7 million employment opportunities, compared to the current 11 million. However, employee demand has decreased slightly, as there are over a million fewer job opportunities than only six months ago. While job availability is still high, investors are watching the development closely. If the employment market continues to deteriorate, the Federal Reserve may adopt a less aggressive monetary policy, resulting in a softer economic landing.
So, recession has a far-reaching effect on employment and the overall economy. However, unemployment rates recovered more swiftly after the last two recessions than they do throughout typical business cycles.