We have three months until the mid-term elections.
Recently I was reading an article by my favorite economist Brian Wesbury at First Trust Advisors. Yes, when you are a financial planner for a living you have favorite economists.
The article (posted here) called Silly Season discusses how for the next three months until the mid-term elections economic data will be twisted and turned in every which way necessary to promote political agendas, for both Democrat and Republican parties.
Right now Republicans are saying we are indeed in a recession and the worst thing Democrats can do now is raise taxes.
Democrats are taking a victory lap after passing of the Inflation Reduction Act and saying July economic data shows inflation is on the decline and the Biden Administration is solving the gas price problem.
Here is where we are at:
- Yes, technically we are in recession due to two consecutive quarters of negative Gross Domestic Product (GDP) growth. That is the textbook definition of recession that they teach in Econ 101, at least when I took it 25 years ago.
- Unemployment has dropped .4% year to date
- Non-farm payrolls are up an average of 471,000 per month
- Industrial production is up 5.2% year to date
- CPI (Consumer Price Index) was unchanged in July from June
- Energy prices dropped 4.6% in July (after increasing 7.5% in June)
- Inflation has likely peaked at 9.1% in June
Economic data is being used and abused by every media outlet out there right now to one end – getting politicians elected or re-elected to their posts.
The data is not being presented in a way to help you make smart financial decisions.
My advice is to continue to not watch financial news (CNBC this means you! Jim Crammer too!) unless you are purely watching for entertainment purposes.
So, if this is a “technical recession” when is the “real recession” coming, you might ask?
In the article Wesbury submits that a real recession will probably happen next year. There is still growth in the economy right now. People are not acting like we are in recession.
If you look at the streets and highways around you, people are still driving and going on vacation. Instate 84 in Idaho here is clogged with RVs and 5th Wheels as people are not giving up their summer vacation plans to a “technical recession” or high gas prices.
And let’s not put all our faith and trust in the Federal Reserve’s raising of interest rates to solve the inflation problem. Historically they (The Fed) target an inflation rate of 2% annually. The raising of rates may curtail that to 5-6%. But getting back to 2% will take a major tightening of monetary policy.
To fight the inflation we are going through now, we as consumers need to tighten our belts and spend less and save more. Inflation is caused by too many dollars chasing too few goods. Again a textbook definition from Econ 101 25 years ago.
Maybe I need some new, more current, textbooks!
The last two years have seen massive spending, by government in the form of stimulus, massive spending by consumers who received said stimulus, and scarcity of goods and services due to supply chain disruptions, shutdowns, lock downs, etc…
Poor energy policy by the Biden Administration has not helped with high fuel and electricity costs.
The Inflation Reduction Act is probably also not going to help much either. The government cannot spend its way out of the inflation problem. The Fed needs to tighten its monetary policy, which will help in the long run but hurt in the short term.
Implications for you
Even though it doesn’t feel like a recession now, I still encourage you to act like you are in a recession to prepare for when the recession comes.
- Watch your spending
- Manage debt wisely
- Make lifestyle adjustments you feel are necessary
- Do not sacrifice long-term goals
- Continue to save and invest
Recessions, like all of life’s challenges, can be conquered if we keep our heads in the game and do not panic.
A moment of gratitude
September 1st marks the 7th anniversary of Mammoth Financial. I’ve been in the financial services industry for 23 years, but September marks the completion of 7 years since I started my own independent financial planning practice.
I want to express my heart felt thanks to our many wonderful clients who let us manage their money and work with us on their planning goals.
We really appreciate you!