Strategic Planning Group Fall 2023 Newsletter

Understanding Recessions:
Navigating the Natural Ebbs and Flows of the Economy
By John Park
From investments to complicated retirement strategies, John works to educate and advise his
clients on making smart financial decisions.
There has been a lot of
speculation throughout this
year about the possibility of
a recession. By way of high
interest rates and tightening the
money supply, the Fed has been
aggressively battling inflation
for some time. These measures
have the potential to cause a
recession. Ultimately, I’d much
rather experience a recession
than unchecked inflation. Let
me state clearly though, I’m not
saying we are in a recession right
now, nor am I saying we are for
certain going to be in one. It is a
possibility, however. So, let’s talk
about that.
Many economists are predicting
a mild to moderate recession
due to the long-lived nature of
our current battle with inflation
and government spending.
Be careful how you react to
this though; these economists
have been wrong before and
many that I follow expected a
recession to hit late last year or
early this year. They have been
wrong so far.
Also, I will say there is an
equal number of economists
predicting a “Goldilocks” scenario
where the economy’s reaction to
battling inflation isn’t too hot or
too cold, it’ll be just right. I hope
that’s the case. I’ve been joking
with my clients all year about
my bold prediction of whether
we’ll have a recession or the
Goldilocks scenario: I’d give
it a 50/50 chance either way.
That’s my humble admission
that I just can’t predict the
future sometimes… Obviously
a Goldilocks scenario is ideal.
It won’t be a source of concern
for investors though. So, I’m
going to focus on the recession
scenario in this article.
The word "recession" often
evokes apprehension and
conjures images of plummeting
stock markets, unemployment,
and financial turmoil. However,
it's essential to understand that
recessions are a natural part
of the economic cycle, just as
growth periods are. They're not
always severe, and with the
right knowledge and strategies,
individuals and businesses
can navigate them adeptly. I
want to help you have a proper
perspective of recessionary
times, if we are going to have
one or are in one now.
1. Nature of the Economic
Cycle:
Like the changing seasons, the
economy undergoes phases –
expansion, peak, contraction,
and trough. A recession falls in
the contraction phase, where
economic activities decrease.
Once the contraction ends,
the economy moves into the
trough and eventually back to
expansion. Understanding this
cycle helps demystify the nature
of recessions.
2. Not Always Severe:
It's crucial to distinguish between
a regular recession and more
severe economic downturns
like depressions. While the
latter can last several years and
cause significant distress, many
recessions are relatively shortlived.
The average post-World
War II recession in the U.S.,
for example, lasted about 11
months.
3. Causes:
Recessions In
Perspective
Recessions can be triggered
by various factors – from
abrupt financial shocks and
global events to accumulated
imbalances in the economy. The
cause often dictates the severity
and duration of the recession.
Strategic Planning Group 6