Ask economists, analysts and the White House if the United States is in a recession, and you will get different answers. With the U.S. posting two straight quarters of negative GDP growth, one definition of a recession was hit this week. Did the world’s richest man correctly predict a recession?
What Happened: The world’s richest man and Tesla Inc (NASDAQ:TSLA) CEO Elon Musk tweeted in December 2021 a prediction that the U.S. would enter a recession.
“If history is any guide, not many will make it past the next recession,” Musk tweeted.
When asked by a Twitter Inc (NYSE:TWTR) user when he thought the next recession would happen, Musk offered up his prediction.
“Predicting macroeconomics is challenging, to say the least. My gut feel is maybe around spring or summer 2022, but not later than 2023.”
In May, Musk said the U.S. was already in a recession that could last 12 to 18 months.
“If one is running a company that makes useful products, make sure you are not running things too close to the edge from a capital standpoint of view,” Musk warned. “Reserve some capital allocation that lasts through irrational times.”
Musk said it could be “tough-going” during the recession, but then things would get better.
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Why It’s Important: Musk said this week that inflation might be trending down based on commodity prices for Tesla and other companies run by Musk. The good news for consumers could be lower prices for Tesla vehicles as a result. Tesla has raised its prices by over 20% in the last two years, according to Electrek.
Musk said he was waiting for inflation to “calm down” before reducing the prices on vehicles.
“Inflation might be trending down,” Musk tweeted. “More Tesla commodity prices are trending down than up.”
The definition of a recession has been a highly debated topic over the last several weeks.
Bloomberg reporter Steve Matthews offered his take on what the GDP report meant for a potential recession.
“No, two declines in GDP do not mean we are in a recession. The official recession judges at the NBER reject that notion – as did Fed Chair (Jerome) Powell Thursday. And many of the important monthly indicators are still quite positive,” Matthews tweeted.
The White House recently updated terminology for a recession in a blog post titled “How do economists determine whether the economy is in a recession.”
The post said that it would be unlikely the U.S. was in a recession even if the second quarter GDP came in negative.
“While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle,” the post said.
Whether the U.S. is in a true recession remains up for interpretation. Elon Musk may have correctly predicted the exact moment of two quarters of GDP declines happening.
Photo: Created with an image from Steve Jurvetson on Flickr
