Are we in a recession? Our thoughts on the subject.

By Gary Poling

People have been asking if we're in a recession. There are many definitions, but most agree that a recession is a significant economic downturn, and I think that has obviously happened with the mandated shutdown of most businesses in this country. 

But, in my opinion, this is not the recession that most people are thinking of. Recessions during our lifetime have typically resulted from a lack of jobs and/or a financial crisis that shakes the entire financial system, and usually take several years to recover from. Neither of those causes are happening now.

This “recession” is the direct result of government mandated shutdowns to control the COVID-19 virus. Once the government ends the shutdown, we believe that most businesses will immediately re-open and re-hire the needed employees. Yes, there will be financial strain on the businesses, but the Federal Reserve and the government have already taken unprecedented steps to mitigate the financial strains while getting back to normal business. 

From an investment standpoint, I do think there will be a significant change with some industries or sectors seeing more demand while others will see less demand. An example of more demand will be anything related to the internet or cloud based as more people will likely continue working at home and enjoy the convenience and immediate satisfaction for purchases and entertainment. An example of items that could see less demand are airlines and cruise ships as employers have seen how they can save money without people flying to do their work, and, at least for a while, people might choose vacations other than a cruise full of strangers in close proximity. I think rental property will also be viewed differently as we’ve seen that renters can lose their jobs overnight with widespread closures of businesses leaving them without the means to pay their rent. Also, the Denver city council passed a proclamation to stop all rent and mortgage payments for 90 days which could have consequences to owners if the proclamation is enforced. https://kdvr.com/news/coronavirus/denver-city-council-to-discuss-canceling-rent-amid-pandemic/

These changes may be temporary or become permanent depending on how businesses and people behave after all the shutdowns and virus fears have faded away. In my opinion, “smart diversification” for investments will be more valuable going forward. Please don’t hesitate to call or email us if you want to discuss these items in more detail or have other concerns.

Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Asset allocation and diversification do not ensure a profit or protect against a loss.