For the previous few weeks, the most well liked subject within the enterprise/monetary media has been whether or not the U.S. economic system is headed right into a recession. Daily, a parade of economists, market analysts and different pundits seem on-line, on TV and in print to present their view on the probability {that a} recession is on the horizon.

As well as, a number of main Wall Avenue funding corporations have not too long ago estimated that the chances of a recession occurring within the subsequent a number of months have elevated.

The chances of recession are growing primarily as a result of the U.S. Federal Reserve is tightening financial coverage in an effort to rein in traditionally excessive ranges of inflation. For the reason that starting of this yr, the Federal Reserve Open Market Committee has raised the goal federal funds rate of interest 2.25%, and it has not too long ago began lowering the scale of the Federal Reserve’s steadiness sheet (which tightens monetary circumstances).

The Committee has additionally indicated that extra rate of interest will increase are seemingly, and most Fed watchers predict a rise of 0.5% on the Fed’s September assembly.

Entrepreneurs have to have a fairly correct image of future financial circumstances in an effort to develop sound advertising plans. As I’ve beforehand written, the well being of the general economic system is among the main elements that create the atmosphere during which advertising plans can be executed. And whereas macro financial circumstances have an effect on completely different sorts of firms in several methods, they may influence the success of promoting efforts at most firms to some extent.

Sadly, the outlook for the U.S. economic system over the subsequent a number of months is much from clear. The uncertainty exists for a number of causes, together with the real-world influence of Federal Reserve’s coverage choices, the persevering with issues in world provide chains, and a attainable power disaster in components of Europe this winter.

Given this excessive stage of uncertainty, the most suitable choice for entrepreneurs is to deal with these future financial circumstances that may be predicted with an affordable diploma of confidence. In my opinion, we are able to say two issues concerning the course of the U.S. economic system over the subsequent 6 to 12 months.

1. Financial development (as measured by actual GDP) is prone to be gradual even when we’re in a position to keep away from a recession.
2. Inflation is prone to be persistent and stay above the Federal Reserve’s goal of about 2% per yr, though there are some indications that we could already be previous the height of inflation.

Financial Progress

Actual GDP development slowed considerably within the first half of 2022. The next chart exhibits the trailing 12 month charge of actual GDP development measured on the finish of the 4 most up-to-date calendar quarters.

On the finish of This autumn 2021, the true GDP development charge over the previous 12 months was 5.5%. By the top of the second quarter of this yr, the annual development charge had fallen to 1.6%.

Beneath-average development over the subsequent a number of months is the almost definitely situation as a result of it’s tough to examine any occasions that will set off a rise in financial development within the brief run.

Inflation

Inflation has emerged as probably the most severe situation presently affecting the U.S. economic system. The next chart exhibits the annualized charge of inflation for January by means of June of this yr as reported month-to-month by the U.S. Bureau of Labor Statistics. The chart contains each the “headline” charge of inflation (All Gadgets) and the “core” inflation charge (All Gadgets Excluding Meals & Vitality).

The substantial and chronic hole between headline and core inflation proven on this chart demonstrates that prime gas and meals costs have been main contributors to inflation this yr. This, after all, will not be stunning to anybody who drives or eats.

Key Takeaways

For entrepreneurs, the important thing takeaway right here is that financial development is prone to be sluggish for the subsequent a number of months. The outlook for inflation is usually favorable, however power market analysts have famous that almost all bodily power markets are nonetheless tight. Subsequently, there’s a substantial threat that power costs might rise later this yr and gradual the progress on inflation.

*PCE inflation is the share charge of change within the value index for private consumption expenditures. PCE inflation is usually thought of to be the Federal Reserve’s “most well-liked” measure of inflation.