Recently, the economy has suffered a flurry of blows, resulting in the beginnings of an economic downturn. Professional economists are divided on whether this means we're about to enter a major bear market (and a full-blown recession) or whether this is merely a temporary setback.

Does our economy have the potential to bounce back from recent downturns?

Motivating Factors

Let’s begin the analysis by studying some of the motivating factors for the recent economic downturn. Why are stock prices falling, and is there reasonable cause for economic concern?

• The COVID-19 pandemic and subsequent issues. The COVID-19 pandemic was a major economic problem, putting millions of people out of work, shuttering millions of businesses, and fundamentally changing how we think about supply chains and economic transactions overall. However, aside from a miniature crash in the immediate wake of pandemic lockdowns, the market performed quite well throughout the COVID-19 pandemic. Recent downturns and setbacks could just be a correction, accounting for the strange discrepancy between our economic problems and our flourishing market.
• An inflationary environment. Our current annual inflation rate is 8.6 percent –and it’s climbing even higher from there. There are many factors responsible for price inflation, with the most notable being an increase in the money supply. With trillions of new dollars circulating as a result of government intervention, inflation was always an inevitability. Now that inflation is setting in fully, consumers are starting to feel the ramifications.
• Higher energy costs. Higher energy costs are another contributing problem. Most consumers are already feeling the effects of higher gasoline prices, and they're seeing higher utility bills to keep their homes running.
• Interest rate changes. For the last couple of decades, the Federal Reserve has kept interest rates extremely low, and in the wake of the COVID-19 pandemic, interest rates were as low as they've ever been. This was attractive for business owners and property buyers, but now, the Federal Reserve is starting to tighten the financial environment. Higher interest rates are leading to more conservative financial plays and fewer options for consumers.
• Real estate woes. Heightened real estate prices shut millions of people out of the market – and helped some property owners retire early. But now that the stock market is experiencing a downturn, people are questioning whether inflated real estate prices are in for a similar correction.
• Geopolitical conflicts. Russia's war in Ukraine and other geopolitical issues aren’t helping matters. Military conflicts and geopolitical uncertainty always drive market volatility and, in some cases, more consumer caution.
• General uncertainty. As a result of these issues and others, the average American citizen is feeling highly uncertain about their future. Politically, economically, and even culturally, the modern zeitgeist is an anxious one.

Other Factors to Consider

However, there are some other factors to consider as well.

• The recovery of the supply chain. If you followfleet management blogs, you’ll quickly figure out that the supply chain is on the verge of recovery from the COVID-19 shutdown. Companies have been working hard to get themselves operational, replenish available stock, and serve their customers normally again. Shipping routes are returning in full force, and only a few lingering issues remain – such as a lack of available workers.
• Industry considerations. We also need to understand that modern economic conditions don't look the same for all industries or all businesses. Some industries are suffering much more than others, especially those in the energy industry and those in the luxury goods market. Certain industries having much higher chance of flourishing even during an economic downturn, keeping our overall economy afloat in the meantime.
• High demand and consumer optimism. Consumers are beginning to speculate about the buying opportunities presented by a potential real estate crash or continued stock market downturn. But this represents abundant demand, which should, in theory, keep prices relatively high and growing.
• Political control and will. Modern politicians areobsessed with short-term decisions that improve their poll numbers and placate the masses. No politician wants to be directly or indirectly responsible for an economic recession, even if a recession would be a healthy thing for long-term economic development. Accordingly, we can expect government intervention to stave off the worst possibilities for our economy's short-term future.

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The Bottom Line

So what’s the bottom line here? The best, most experienced economists all agree on one thing: future economic developments aren't predictable. The economy is such a complex and constantly evolving thing that historical models and accurate modern data simply aren’t enough to tell us exactly where things are headed. We could be in store for a major recession, or the markets could start bouncing back immediately. The smart play, therefore, is to wait for more information before making a formal assessment.