– [Narrator] If you look
at every U.S. recession, well, since World War II, you'll see two things always happen. The GDP, the measure of
economic output goes down and unemployment goes up. – For most Americans, when
do you feel a recession? It's when you start
worrying about your job. – [Narrator] Now let's look at today. The GDP is going down, even
the head of the federal reserve says a recession is- – Certainly a possibility. – [Narrator] But the unemployment rate, it's actually falling. More people are getting
jobs, not losing them. – We don't know if it's a recession. What we can say is that if it is one, it's not like anything
we've ever seen before. – [Narrator] Here's why. The reason the GDP and
unemployment are always together is because they feed on each other. When businesses layoff workers,
people spend less money which means businesses make fewer profits and lay off workers.
A recession can begin
at any of these points. And in 2022, people could
cut back on spending. Just look at consumer
sentiment, a measure that weighs how people are feeling about the economy and whether they plan to spend money soon. Generally, when people
respond that they feel more pessimistic, a recession follows. And right now they're
feeling about as good as during the great recession
in 2008, thanks to inflation, not a great sign for the GDP. – If people are frustrated
by high inflation, if they think inflation is
gonna stick around for a while, they might pull back convince
companies to cut back and that leads to worse
outcomes for the economy. – [Narrator] But businesses
are in a different place than past recessions. This chart shows the average
corporate profit margin. In the past profits were
in these single digits leading into several
recessions including 2001. – That was a business driven
recession where companies over-invested, they decided
they had to cut back in order to rebuild our profit margins and that led us right into a recession.
– The bubble has now burst. I would not argue yet that
we've seen the bottom in NASDAQ or in our tech index. – So are we back in one of those cycles? In some ways it doesn't look like that because profit margins
are so high right now. – [Narrator] Not only are
corporate profits in double digits but the amount of cash they
have is close to $4 trillion. Analysts say that's a
significant downturn buffer.
