The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Thinking About Recessions


Most people think of an economic recession as a big, bad Boogie-Man.  Economists have conjured up precise definitions of a recession, but the only one that matters to the stock market is the conventional “two consecutive quarters of negative GDP growth.”  Right now, we have precisely zero quarters of a shrinking GDP, and this quarter will also be positive.  More importantly, we should understand a “growth recession,” which is probably where we are now.  That is two or more quarters of a slowing economy or dropping GDP growth rates but still growing more slowly.

The latest survey from the National Association of Business Economics (NABE) forecast GDP growth would fall under 2% next year.  It was a robust 2.9% in 2018 and looks like 2.3% this year with a prediction of 1.8% next year.  That’s a growth recession!

In addition, as the American economy got larger and larger, it became increasingly obvious that there was no ONE economy or one GDP.  For example, during the energy crisis of the early 70’s, the energy-producing parts of the country like Texas boomed, while the energy-dependent parts  like New York suffered.  The concept of “rolling recessions” became popular.  One part of our country could enjoy a robust economy, while another part could be in a severe recession.  Regional economics became more intensely studied.  That can be very significant in picking individual stocks.

Then, the concept of “rolling recessions” was applied to economic sectors in the economy.  Today, the defense sector is booming, while the manufacturing sector is approaching recessionary levels.  One sector of the economy can be growing while another sector is shrinking.  Having your portfolio over-weighted in one sector of the economy and under-weighted in another is smart and is called “sector rotation.”

So, the word “recession” has many meanings and impacts.  Recessions are neither the Boogie-Man nor the Easter Bunny.  It is a merely a set of scary economic conditions that come and go . . . .


We are a fee-only advisor providing best interest fiduciary services to clients
in Chesapeake, Newport News, Norfolk, Suffolk, Virginia Beach, Williamsburg, and the surrounding areas of Hampton Roads.


Contact Us Bottom