US Recession 2022 & will this recession see massive layoffs?

What is a Global recession?

A Global recession is a recession that affects many countries around the world (i.e) period of Global economic slowdown or declining economic output. In simple words, When there is a global recession, people tend to spend less money than usual. For example, when they go shopping for groceries, they might choose to buy fewer items than normal. This is what we call as a slow down of trade and it is termed as a Recession.

Also a recession is defined as two consecutive quarters of negative growth in GDP.

What Causes the Recessions?

A recession usually starts with a decline in economic activity.

Financial theories try to explain why economies go into recession. They look at things like interest rates, inflation, and the amount of money in circulation. These factors affect whether businesses borrow money to expand production, hire workers, buy equipment, etc., and thus determine whether the economy grows or shrinks.

Credit and monetary policy theories focus on the role played by banks and central banks. Credit theory says that banks lend out too much money, causing the economy to grow faster than it otherwise might. Monetary policy theorists argue that governments should control the money supply to prevent booms and busts.

Psychological theories focus on people’s attitudes toward the future. Optimistic economists believe that people tend to spend more during good times because they think the economy will continue growing. Pessimistic economists believe that people save less during good times because they fear the economy won’t recover.

By the way, as a layman below factors are the main reasons for Recession.

1. Drying Demand
2. Asset Price Collapse
3. Reduced Consumption
4. Energy & Commodity Price Collapse

Difference between Recession & Depression?

History of Recession

• 1975
• 1982
• 1991
• 2009

All previous recessions coincide with other countries due to globalization. Based on the earlier experience, we can say recession is coming. We believe it will happen around the second or third quarter of next year. This is based on several factors, including the fact that we are seeing signs of economic weakness across multiple sectors. In addition, we see some clear warning signals, such as rising bond yields, falling stock prices, and slowing global growth.

Is the US in a recession?

Some economists believe that the United States has experienced two consecutive quarters (Q1 & Q2 of 2022) of negative economic growth in 2022 which is considered to be a recession. However, the National Bureau of Economic Review (NBER) hasn’t made its final decision yet.

The Federal Reserve Board uses three criteria to determine whether a recession has occurred:

1. Two consecutive quarters of negative GDP growth
2. Unemployment above 5%
3. Consumer Confidence Index below 50

Recessions are often accompanied by a bear market. Bear markets are periods where stock prices fall sharply. They are characterized by declining volume and volatility.

During a recession, governments typically respond by adopting fiscal policies designed to stimulate demand. These include tax cuts, increased government spending, and lower interest rates..

                              Source “U.S. Bureau of Economic Analysis”

Reason for Recent Tech Giant Layoffs

1.Central Banks hikes interest Rates

The US Federal Reserve raised interest rates from 3.75% to 4.0% as of Nov 2022 and this the sixth rate hike this year, and it seems like the rest of the world is starting to feel the effects. While there is no guarantee that a US recession will hit India, companies are worried about the impact on their own businesses. There is a possibility of slowing down in IT spending in the next six months.

There is a possibility of a downturn in the Indian economy. If the US goes into recession, it could lead to a slowdown in the Indian economy. This could mean layoffs for startups. However, the central bank believes that a recession won’t happen.

During a recession, consumers cut spending and businesses reduce investment. This leads to lower demand for goods and services, causing companies to lay off workers and close down production facilities

2.Software companie’s wrong prediction of future

We are coming out from a major century’s pandemic, based on the company’s growth and performance in quarters of the pandemic, Software companies start forecasting the future using the trend. As a result they start recruiting people according to the future forecast. During the pandemic period companies save a lot of money on infrastructure so they hire more people, introduce new projects, and recruit talent accordingly. But suddenly reality strikes because the pandemic ended and people started coming out. So the behavioral shift is happening again, now we move into the same territory where we were 2 years ago. As a result, most of the company’s forecasts get shattered, so companies start to cut-off immediately.

These are the two main reasons why big companies are laying off in large numbers.

During Recession How to survive?

Usually recessions are short-term events lasting around 12 to 24 months. They tend to cause temporary layoffs and slowdowns in consumer spending. Before getting into the recession we should take below mentioned precautionary steps.

1. Save & Spend – Cut Discretionary Spending
2. Improve your skills – Add more skills to your resume
3. Strictly no new EMI or Loans 
4. No Big Purchase – Don’t get into new commitments
5. Tax planning in Advance – Proper Tax planning
6. Insurance – Take Health & Term Insurance to your family
7. Easy to liquefy Assets – Invest in Gold & Stocks