To The Moon

Welcome to the slow-motion recession.

Photo byAdeolu EletuonUnsplash

If you’re going to lay off 12,000 people, you should at least make an effort at telling them first.

Unfortunately, Google didn’t get that memo, with some of their employees only discovering their laid-off status after their name badge failed to grant the building access that it had on every other day of their employment. Surprise! Turns out the company conducted layoffs via…email. But if you have some sense of boundaries and don’t check your emails at 5:55 A.M. before heading to work each morning, you’d have missed it.

Not a tactful way to do business, particularly for such a momentous event in your employees’ lives. Perhaps the hope is that it would go unnoticed amongst the other news of economic turmoil. For the most part, it appears to be. Just a day after reports of Google’s haphazard employee dismissals, news pivoted to another set of layoffs —this time, Hasbro.

Much talk has been had about a supposed coming recession, but it’s pointless. Why? Because, by pretty much any metric except the one we actually use, we’re already in a recession, and it’s a fairly bad one, at that. Let’s take a look at why.

The working definition

First off, we should start with the fact that a recession is a label applied to a given economic situation. Like any label, it can be applied arbitrarily. In the United States, we often try to remove the subjectiveness by strictly defining it as two full quarters of GDP decline rather than the long-expected growth. What many don’t realize is that this definition itself was created somewhat arbitrarily by an economist named Julius Shiskin in 1974.

The Bureau typically in charge of actually applying these labels has a vaguer definition, though:

“[Our] definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. In our interpretation of this definition, we treat the three criteria — depth, diffusion, and duration — as somewhat interchangeable.”

Well, there you have it. What more do you need?

First off, a colloquial definition — one that applies to most people. There are both hypothetical and real situations in which GDP can be growing while the vast majority of people perform poorly. The opposite is also true — GDP can hypothetically retract while most people are experiencing relatively sound financial times. It’s the first one I’m most concerned about today.

This is not to say that I think the traditional definitions are unusable or unreliable. There are macroeconomic effects that impact everyone when you see the type of persistent contraction that meetsthosedefinitions. But since most people associate “recession” with “times are bad,” we need a more “Main Street” definition.

Photo byTarik HaigaonUnsplash

A think a colloquial recession — or a workers’ recession, or the people’s recession, or whatever you choose to call it — has a few components beyond GDP. Are people’s retirement accounts faring worse? Is it getting more difficult to get by? Are median incomes dropping, and, if not, arerealincomes dropping when compared to inflation? These could be considered the measures of an actual recession for normal people. And if that’s the case, then we’re already in one.

Components

With that in mind, let’s look at why we’re already in a bad situation. First of all, we should set the general stage for our economy. In the U.S., Canada, and the United Kingdom, the workforce has never returned to its pre-COVID levels. This is due to a multitude of factors that have been covered extensively, many of them right here in theMaking of a Millionaire publication. Still, it is important to keep that number in the background when discussing the overall economy.

United States workforce participation rate from St. Louis Fed — public domain.

Canada’s decline is less steep but still hovers near historic lows. The U.K. finds itself only set back a few years — to 2017 or so — as their participation rate bottomed out much further back. In a sense, they’re in the best shape.

So, next, we move on to see if people are doing better in general. Is it easier to pay bills? Since real income is adjusted for inflation by the Fed when they calculate it, we sort of already know the answer to this one even though 2022 data isn’t out yet. Interestingly, it was already in decline in 2021:

Median Household Income (CPI Adjusted) from 2000–2021 — St. Louis Fred, public domain.

So workforce participation is hovering near lows, and the income for those who are in the workforce isn’t going as far. Those who are out of the workforce are often on fixed-income payments. Social security gets adjusted for inflation, sure, but plenty of pensions do not. A large portion of the population got much poorer these last 18 months.

That’s not painting the prettiest of pictures already. But there’s more. Household debt levels are rising again after being in continuous decline for almost two decades. “Real” income is inflation-adjusted, sure, but inflation is a bad number. It uses “average” payments across the whole country, which is just not a good way to go about things. If housing prices doubled, but only 5% of people got a new house that year, inflation in housing would be clocked at 5%. But the price doubled.

So when inflation is running at 8%, that really means things are insanely more expensive than they were a year ago and that someone just starting out in adulthood now is likely to have twice as difficult a go of it as someone would have last year. Some of this is starting to retreat, thankfully, but it still points to difficult times ahead for the average person. Real estate is one example:

Snip by the author from Redfin’s public data on the housing market. Public domain.

We can see some relief in the housing market beginning in the middle of 2022 —not saying I called it or anything— but a lot of people are still going to be in their 2020, 2021, and 2022 mortgages for a while. Can’t refinance when you’re underwater. Wouldn’t want to refinance when rates are up three points. Some years linger around longer than others, I suppose.

So when you look at those figures, it stands to reason that the average person feels like they’re in an economic squeeze already. All that’s missing is the label.

Next

There’s one group of people that definitely recognize this reality — corporate executives. How do we know? Well, while corporate profits are about steady year-over-year, layoffs have begun. By preparing for the bad times, they’re actually accelerating them.

The list of those joining the layoff train varies. There are those companies that built up expecting growth that never came, and others that just have tremendous declines in business. A very incomplete list from 2022 and 2023 includes:

• Spotify: 6% of workforce
• Google: 6% of workforce
• Goldman Sachs: 8% of workforce
• Facebook/Meta:13% of workforce
• Snapchat: 20% of workforce
• Wells Fargo: 50% of mortgage division
• Bed Bath & Beyond: 20% of workforce (cumulative)

Amazon, IBM, Microsoft, Zillow, and others could join the list if I was a less lazy researcher. But you get my point.

Add in the fact that theU.S. stock market had its 7th-worst year in history (three of which occurred during the Great Depression) last year, and you’ve got an economy that hits most major negative items. Are retirement accounts and 401k funds getting killed? Yupp. Is real income declining? Absolutely. Are the biggest single household expenses getting exponentially more expensive? You bet. Are companies starting mass layoffs? Been doing so for a year.

I’m particularly worried about the impact this will have on millennials — already something of a lost generation — and Gen Z. The latter is entering adulthood with disproportionate costs on everything from housing to transportation to the education they were told was necessary. The older half of millennials have already been through a dot-com burst, housing crisis, the “Great Recession,” a once-in-a-century pandemic, and now this just between the ages of 18 and 40.Not a surprise that they’re broke. Now we see if this casts a similar fate for their successors.

None of this is good news, I know. Still, it is worth talking about. Knowing the general economic conditions of the day helps us all make better personal financial choices based on risk. But if there’s one good thing about it all, it’s this: We can stop fearing the incoming recession. We’re already living it.

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