Norman investment and economy experts say a recession could be on the horizon, adding to challenges businesses and consumers have navigated for over two years. More than 90% of small business owners are concerned the U.S. could enter a recession in the next six months, according to a survey released by Goldman Sachs earlier this month.
Recessions are identified as declines in economic activity using indicators such as employment, wages and real gross domestic product, a measure showing the value of all goods and services produced by an economy in a given year, with prices adjusted for inflation, according to the St. Louis Federal Reserve Bank.
Following strong 2021 fourth-quarter real GDP growth at 6.9%, 2022’s first quarter declined by 1.6%. Q2 2022 will be released Thursday. Goldman Sachs anticipates an annualized gain of only 0.7% for the quarter.
The technical definition of a recession includes two declining quarters of real GDP, though Robert Dauffenbach, senior associate dean of Economic Development at the University of Oklahoma, said that’s never been the complete story.
Dauffenbach said the Bureau of Economic Analysis, the entity charged with dating recessions, looks for significant declines in real economic activity, where the employment scene plays a large role.
“I don’t know of any time periods that haven’t been called recessions where the employment level was declining and unemployment rates were rising, and we just haven’t seen that yet,” Dauffenbach said.
Talks of a looming recession are ramping up as the Federal Reserve continues to take an aggressive approach toward combating steep inflation.
The Consumer Price Index, a measure of the average change over time in prices paid by consumers for goods and services, increased to 9.1% in June from a year ago, marking the fastest inflation pace since December 1981.
CNBC reports the Federal Reserve is likely to raise its key interest rate by 0.75% when they meet next week, continuing on a rate hike path not seen in decades.
Dauffenbach said there is increasing concern that the rate hikes to fight inflation could push the country into a recession.
He suspects the odds of a recession in 2023 are greater than 50%, but everything depends on future inflation reports.
“If persistent, the Fed will have to lean harder, and the likelihood of something breaking in the financial system increases,” Dauffenbach said. “If month-over-month inflation starts to fall dramatically, we can avoid a recession.”
The combination of recession concerns with significant inflation has investors questioning and changing their approaches.
Local CPA Robert Castleberry said recent economic conditions have had a profound impact on consumer confidence, which often changes investment strategies.
Consumer confidence in the U.S. is currently at a 16-month low of 98.7, the lowest rating since February 2021. The expectations index declined to 66.4, the lowest reading since March 2013, according to Wall Street Journal.
“I think we’ve gone from probably the past five to 10 years of just thinking, ‘Buy any stock in the market and you’ll be fine because everything’s going to go up and you don’t have to be very good at this,’” Castleberry said.
Currently, Castleberry said it’s a stock picker’s market, and he is advising clients to make sure they match their risk tolerance with investment dollars.
“A lot of that is just trying to diversify and figure out what’s right for the client,” Castleberry said.
Economic uncertainty also continues to impact the decisions of Norman business owners.
“I think it causes small businesses to slow down on growth or expansion plans,” said Scott Martin, Norman Chamber of Commerce president and CEO.
In recent months, Martin said he has seen the Norman business community navigate the current conditions through unique promotions and more common measures, such as reduced operational hours and cost adjustments.
“I know that businesses, in general, are always trying to put away [savings] for a rainy day, but to be fair, it’s been that rainy day for over two years,” Martin said.
Despite that, Martin gauges the overall sentiment of the Norman community as largely optimistic.
Martin said the Norman business community continues to grow in the face of increased delivery costs due to high gas prices and inflated goods.
“I applaud entrepreneurs and risk takers who, in spite of the situation, have a very forward thinking and upbeat prognosis,” Martin said. “They’re bullish on Norman, they’re bullish on Oklahoma, and they know things are going to turn around.”
