With Summer days poolside, beachfront or boat cruising now fleeting, we prepare for the back-to-school rush. As we prepare for the Fall, new editions of textbooks and updates to academic curriculum are key to the back-to-school process, reflecting new data and findings in various academic fields, and the economic field is no exception.

Various new economic data point to anomalies during these past few years that challenge previous assumptions that many economists and investors have been operating under. These data will be studied for many years to come, with particular relevance for the economics of recession and related inflationary dynamics. The textbook definition of a recession is two quarters of negative back-to-back Gross Domestic Product (GDP), which we have now officially experienced during the first half of this year. Other classic market indicators of a contraction include an inverted yield curve (as measured by the 2 vs. 10 year Treasury yields), which has now been negative for 23 trading days and counting.

Yet counter to the traditional notion of an economic downturn and a recessionary environment, consumer demand and employment data remain quite robust.  The June consumer demand and blowout July nonfarm payroll employment numbers are evidence of this, but these factors may contribute further to the environment of economical fragility. It is with this backdrop that the Powell led Federal Reserve must balance fighting inflation and raising interest rates, just enough to slow down economic activity, all while trying to avoid deeper economic recession.

I remain cautiously optimistic as the US dollar continues to be a safe haven through another bout of geopolitical uncertainty, reinforcing the notion that we have the wherewithal to navigate these challenging economic conditions. As the back-to-school mindset sinks in and we revisit our annual routines, I hope this update will help you in considering the current economic environment.

As always, reach out for a chat, as we are happy to discuss your financial picture during any season.

 

Shar Gogerdchi, CFP®

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