MINNEAPOLIS (FOX 9) - Fears are growing that a recession is coming, so FOX 9 wanted to find out the chances of that happening and how Minnesotans’ wallets would fare if it does.
A recession is often defined as gross domestic product, or GDP, declining for two straight quarters, or six months. But Louis Johnston, professor of economics at the College of St. Benedict and St. John's University, said economists actually use several factors they use to decide when we've reached a recession. He’s pumping the brakes on the current concerns.
"I think we're at about a one-in-three chance of having a recession by the end of the year," Johnston said.
Johnston said the current economic conditions have analysts and economists stumped.
"This is something we really haven't seen since the end of the Second World War or even the end of the Korean War, where we've had a situation where the economy really was in this terrible situation -- either a war or, in our case, a pandemic -- so that you have both inflation going up, GDP starting to shrink, but yet, people are working," he explained.
Minnesota's job market, for example, is doing pretty well. The current 1.8 percent unemployment rate is the lowest of any state ever.
Last week, state officials said it's unlikely a recession would cause a huge increase in the unemployment rate.
"Even a slowing in hiring at this time is not likely going to create a dramatic spike in the unemployment rate," said Oriane Casale, assistant director of the labor market information office for the Minnesota Department of Employment and Economic Development.
Johnston predicts Minnesota would fare well during a recession because the state is diversified.
"We're not going to get hit with one particular industry driving the whole state down," he said.
The White House is downplaying fears of a recession ahead of the release of a key report that will show whether the economy shrank for a second quarter.
The Federal Reserve is are also expected to raise interest rates this week, which Johnston said will affect borrowing, credit card rates and big purchases.
"If you're thinking of buying something like buying a house or buying a car, it's going to be cheaper today than it is going to be six months from now," he said.
He also said safer investments are going to be more attractive than riskier, like bonds instead of stocks.
"Cash, surprisingly enough, might actually be more attractive because interest rates for things like savings accounts, checking accounts, CDs – things like that – are actually going to be going up," Johnston said.
State officials said there was a period back in the 90s when the country went into a recession but Minnesota did not, so there's a precedent there. That was also the time when the state had its lowest unemployment up until now.