How stock market selloff affects your 401(k), retirement goals
According to experts, the best way to handle a stock market plunge is to ignore the selloff and keep investing.
More than halfway through the year, the economy continues to be a hot topic.
Nationwide, the unemployment rate ticked up to 4.3% in July, according to the latest report from the U.S. Bureau of Labor Statistics.
The consumer price index, which measures the inflation consumers experience daily, rose 0.2% last month, largely due to the cost of housing increasing.
At the same time, the nation saw employment numbers increase by only 114,000 jobs, mainly in the healthcare, construction, transportation, and warehousing sectors. And the recent volatility in the stock market has also given many consumers pause.
The mixture of events has left consumers wondering if the country is in a recession.
The Courier Journal sat down with Uric Dufrene, the Sanders Chair in Business at Indiana University Southeast, to learn more about the state of the economy and whether or not we are experiencing, or about to experience, a recession.
What is a recession?
A recession is “a noticeable slowdown in economic activity,” Dufrene said.
This slowdown is usually measured and noted when there are two consecutive quarters of declines in gross domestic product, or GDP, which is the market value of goods and services.
“If the U.S. was a business, GDP would be the value of all those goods and services produced, which is based on consumption by consumers,” Dufrene said.
When consumers are price sensitive, opting for less costly products and services, it can be a contributing factor to the decline in GDP. During a recession, the decrease in GDP will usually be coupled with increasing unemployment, as well.
Are we in a recession?
In short, no.
Dufrene and Alberto Musalem, president and CEO of the Federal Reserve Bank of St. Louis, which covers Kentucky in its region, agree that we have not yet experienced a recession in 2024.
At an August event hosted by Greater Louisville Inc., the area chamber of commerce, Musalem said that over the last six months, the U.S. economy has been “growing very well.”
“The data has not supported the idea that we are, have been, or are about to be in a recession,” Musalem said.
In Kentucky, the unemployment rate sits at 4.7%, slightly higher than the national rate, as of July data released from the Kentucky Education and Labor Cabinet.
Dufrene said Kentucky is experiencing a slightly different economy than the rest of the nation due to its large reliance on the manufacturing industry which helps set the tone of the state economy. The manufacturing industry is currently experiencing a recession, largely as a result of high interest rates and decreasing demand for manufactured goods as consumers remain price sensitive.
Despite this key Kentucky industry experiencing a recession, even locally, “We’re not in a recession,” Dufrene reiterated.
What is inflation?
Inflation is how much the prices of goods and services have increased over time. The current inflation rate in the U.S. is 2.9%.
Are inflation and a recession related?
“Inflation without an increase in earnings means that you have reduced spending power,” Dufrene said. “High inflation could result in and lower consumer activity.”
During periods of inflation, consumers become more price-conscious as they try to wait for prices to stabilize and return to “normal.” This decrease in spending, or change in spending habits, can lead to a decline in the GDP, which, if persistent for long enough could impact the likelihood of a recession.
Inflation is a key factor in consumer sentiment, or how consumers feel the economy is doing.
“It all goes back to inflation,” Dufrene said. “Everyone is impacted by inflation, whether you’re employed or not employed. Whether you’re making six figures or you’re at the poverty level, you’re impacted by inflation, and consumers in general don’t like inflation.”
What role does the government play?
In recessionary periods, the government can deploy a few “automatic stabilizers” such as unemployment compensation to help consumers get relief, Dufrene said.
A recent example of government action used to lighten the economic load on consumers during a tough economy was during the pandemic when the government issued stimulus checks.
On the flip side, Dufrene said “excessive government spending” could lead to more inflation, and more inflation along with other factors such as high interest rates, could lead to a decline in consumer spending.
Contact business reporter Olivia Evans at oevans@courier-journal.com or on X, the platform formerly known as Twitter at @oliviamevans_.
