I think we can all agree the economy in recent months has been confusing.

 

Few of us expected another recession so soon after the COVID downturn in early 2020. But depending on who is talking, we are either on the verge of a new recession or already in one.

 

Not that it matters much, because if this feels like a recession to you, no expert is going to convince you otherwise.  

 

If this is a recession, it would be the first double-dip downturn we’ve had in 40 years. 

 

You have to go back to the early 1980s to find consecutive recessions that occurred so close together, like they did between January 1980 and November 1982. 

 

The informal rule is that a recession occurs when the nation’s gross domestic product experiences negative growth, or in layman’s terms the economy shrinks, for two consecutive quarters. That occurred during the first two quarters of this year, but no recession was declared because of the strength of other economic numbers.  

 

During the early 1980s the overall shrinkage was also small and experts eventually came up with the term “rolling recession” to explain what was happening as different sectors of the U.S. economy experienced pullbacks as part of a painful restructuring process. Industries that fell victim to rolling recessions included the automobile and transportation sectors, banking and insurance, housing and home appliance makers, as well as the agriculture and timber industries. 

 

In many areas, the difficulties continued for a decade or more, even though the technical recessions were much shorter.

 

Like the 1980s, the Federal Reserve and other economy watchdogs today have deployed time-honored strategies, like raising interest rates to bring down inflation; and like the 1980s, there is frustration at the lack of immediate desired response. 

 

While we wait for positive signs of economic progress, all we can do is wait and speculate.

 

To keep my spirits up – and my mind off my market-squeezed retirement accounts – I’ve been reading financial newsletters written by Iowa native James Paulsen for the Minneapolis-based Leuthold Group.

 

One recent newsletter mentioned five recent good-news reports, including “rising confidence” among consumers, small businesses and CEOs, which Paulsen said was driven in part by “a recent decline in the inflation rate.”

 

That’s definitely a positive sign because one of the drivers of the 1980s recessions was persistent high inflation, which is also a big concern now.. 

 

“Confidence often collapses in a recession and worsens any economic contraction,” Paulsen wrote, and “an upswing in confidence is a sign that we are winning the war against inflation.”

 

“Another piece of positive news,” he wrote, “is substantial U.S. trade improvement,” because more sales of U.S. goods abroad “signals less inflationary force … while also providing a buffer to any economic contraction.”

 

Profit margins are another good sign. “If profit margins were due for a collapse, it should have already happened,” Paulsen wrote. That does not mean profits can’t collapse in the future, but the signs are good now. Plus, he added, if inflation has peaked, it should bolster a lot of bottom lines. 

 

Paulsen’s fourth favorable economic signal involves the jobs market, where the Federal Reserve has been worried that a shortage of workers was producing wage inflation. That’s what happened last year, but 2022 is different, Paulsen said. It’s been marked by “decelerating wage inflation” with pay increases trailing, rather than leading, the Consumer Price Index. 

 

His final positive sign is that businesses are investing in core capital goods that make workers more productive. Such investments ebb and flow with the economy, and the fact that they are now higher than at any time since the year 2000 is a strong signal for where business is headed, Paulsen said. 

 

While Paulsen did not draw comparisons between today’s economy and the double-dip recessions of the 1980s, others have argued that today’s problems can be traced to massive deficit spending that began during the 1980s with tax cuts and military spending, and which succeeding generations have continued to embrace.