“The slowdown in household spending and private domestic investment does not bode well for the economy. It may indicate that the recession is already underway,” says Bisrat Kinfemichael, Ph.D., assistant professor of accounting and finance at New York Institute of Technology.
“The Fed’s aggressive approach to lower inflation to the Federal Reserve’s 2% target could further accelerate the economy’s downturn in Q1 of 2023,” he adds.
However, despite these economic headwinds, the overall unemployment rate is currently very low, which is unusual for a recession. Kinfemichael notes that this may be because the pandemic impacted the labor force participation rate, now causing fewer people to be employed or looking for work compared to pre-pandemic levels.
“Consequently, the downturn in economic activity may not be accompanied by a high rate of unemployment, as is typical of a recession,” says Kinfemichael.