How to Stay Calm During The Recession and High Inflation

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The United States’s economy has shrunk for two consecutive quarters, signally the unofficial start of a recession. Although the White House has been at pains to point out that an official recession only begins when the National Bureau of Economic Research (NBER) has concluded its study of the business cycle, pessimism about the economy has risen.

Furthermore, the global supply chain disruption and the effects of the Russo-Ukrainian War have triggered a wave of inflation, the likes of which have not been seen since the 1970s. It can be very tempting and very easy to fall into despair, but there are many reasons to keep calm during this epoch of recession and high inflation.

Unemployment is Historically Low

Despite the United States being in an unofficial recession and experiencing the worst inflation in 40 years, there are still signs of strength in the economy. The unemployment rate, at 3.6%, has only been lower on four occasions: September 2019, January 2020, and February 2020, all times in which the unemployment rate was only 0.1% lower, and May 1969, when unemployment was at 3.4%

Source: Organization of Economic Co-operation and Development (OECD)

 

So while economic conditions are deteriorating, that has not translated into a lousy job market for most people. Businesses often face staffing shortages, with health care, the police, restaurants and hotels, and other sectors of the economy suffering. With the Great Resignation, millions of Americans have quit their jobs in search of better work-life balance and opportunities as entrepreneurs. The internet has broken the relationship between where a person lives and where they work, the result is that knowledge workers can offer their services to a global marketplace. A business in a city now has to consider what its rivals across the globe are offering workers, whereas in the past, given that most people tend not to move in search of work, they could have their pick of workers. The long-run effect of remote and hybrid work models will be that earnings will rise. This is borne out by the data, with the Bureau of Labor Statistics (BLS) showing that real wages are indeed rising, with actual average hourly earnings increasing 0.5% in July. 

Source: Statista

 

The Passion Economy is Thriving

The internet has made it possible to run a business serving an extremely niche market. The “passion economy” is thriving. Through internet platforms such as Substack, Podia, and Teachable, entrepreneurs can serve niche markets of just 1000 or even 100 “true fans.” These entrepreneurs create content on some niche subject, knowing that the internet makes it possible to match them and their content with a niche community of people who are passionate about that subject.

Content creators can earn revenue from newsletters to piano lessons by building a passionate audience of faithful fans. If a creator with just 100 true fans, that is, that portion of the audience that loves your work and is willing to pay for more of it, charges $100 per year for each fan, that creator can earn $100,000 per year from their content.

A creator with 1,000 true fans can charge just $10 per fan and earn that same $100,000 per year. Of course, the kinds of content offered by a person with 100 true fans and charges $100 per true fan are materially different from that provided by a creator with 1,000 true fans and charges $1,000 per true fan. That said, the passion economy is growing in the age of the internet, and online businesses are growing part of the economy and offer an escape route during this period of recession and high inflation. 

Travel is Rising

According to the Transportation Security Administration (TSA), travel numbers are near their pre-pandemic levels. Las Vegas and Orlando, particularly, are very close to their pre-pandemic levels as tourism booms. In Maine, restaurants, and hotels are recovering, even though they are facing massive staffing shortages. This once again points to the unemployment situation is so positive. Rather than unemployment, the crisis affecting America is one of the staffing shortages. 

 

Other Parts of the Economy are Doing Well

Words like “recession” and “inflation” often evoke images of universal suffering, but these economic phenomena are not evenly spread out across the economy. 

The energy sector is booming, thanks to rising energy prices, which presents employment opportunities for many workers. Automakers are doing well, with Ford reporting a recent 32% increase in revenue. The gloom and doom surrounding the economy aren’t reflected in retail figures, which continue to defy expectations, and, while not rising, have remained flat, with shopping habits changing to reflect inflationary conditions. This period has been suitable for businesses that provide gas and groceries. 

 

Farmers are doing well, despite the high cost of inputs such as stock feed, fertilizer, and pesticides. As a result, farmland owners are enjoying one of their best periods in history, with industry experts saying 3-year farmland price trends are going “up, up, up.” 

 

The gloom and doom also ignore the size of the United States: Texas’ economy is as large as Brazil’s, New York’s is more significant than Canada’s, and Alabama has as many people as Ireland. As for our great foe, Russia, the U.S. economy is nearly 15 times that of Russia’s. Within this vast country and its large economies, there is lots of scope for small businesses to thrive even during a recession. Some states will do well; others will not. Recessions and inflation do not mean that every business and every state will do poorly. 

Conclusion

Although the United States is going through a bad economic period, not everything about the economy is doom and gloom. Unemployment numbers are historically low, travel is rising, and many other parts of the economy are thriving. In addition, people can use the internet to find jobs globally or start new businesses in the passion economy.

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