What Is A Rolling Recession?

Key takeaways

• A rolling recession impacts different industries at varying times
• Many investors fear that the U.S. is entering a rolling recession
• High inflation and a seemingly overheated job market are the main reasons for this concern

For months, Americans have feared an oncoming recession. High inflation, layoffs in some industries and falling real wages have left some people struggling to pay their bills.

Simultaneously, the job market remains strong due in part to historically low unemployment, leading some economists to think we might be dealing with a rolling recession.

But what does this mean for you when it comes to your finances? We break down what you need to know during these uncertain economic times.

If you are confused about how to invest as we face a potential rolling recession, artificial intelligence (AI) can help. Download Q.ai to build a portfolio that meets your investment goals today.

What is a rolling recession?

An economic recession happens when an economy’s overall output shrinks rather than increases. Typically, this is measured by changes in gross domestic product.

A rolling recession is a special type of recession that does not impact the entire economy equally. Instead, it hits different market sectors at varying times. This means that while the economy as a whole might not be in a recession, people in certain areas or particular industries could feel like they are in a recession.

Put another way, instead of a recession hitting the country all at once, it rolls through, hitting certain parts at different times. Some areas of the economy may even get spared entirely.

What’s happening now?

Many signs indicate the U.S. economy could be entering a rolling recession. One easily visible one is the combination of recent tech layoffs and the January jobs report.

Major tech firms, including Microsoft, Yahoo, eBay, Zoom, HubSpot and Google, have announced layoffs in the past few months, with some companies cutting thousands or tens of thousands of jobs.

Despite those layoffs, the January jobs report beat expectations by adding 517,000 jobs to the economy compared to the expectation of 185,000. Most of those new jobs came in the leisure and hospitality industry.

While tech might feel like it’s in recession, the leisure industry is booming. Plus, the overall jobs report indicated that the labor market is strong, with 1.9 open jobs for every unemployed person.

Beyond tech, other sectors of the economy have also seen recent weakness. The housing market sharply declined last year, and many financial companies have had to tighten their belts as credit becomes more expensive. That includes originating fewer loans and becoming more strict about borrowing requirements.

The reasons for a rolling recession are complicated. Some argue that the pandemic killed the demand for services and spiked the demand for goods as people could not leave their homes. Now, as the pandemic recedes, pent-up demand for services is causing expansion in those sectors even as demand for manufactured goods falls.

Rising interest rates and increased adoption of remote work have also deadened demand in the housing market, leading to the recent drop in sales.

Where are we headed?

Predicting the future isn’t easy, but there are some signs that you can use to figure out where the economy is headed.

Recent layoff announcements at tech companies indicate this sector might be in for slower growth than usual. However, it’s important to remember that many companies grew their headcount massively during the pandemic. Layoffs in the industry could be an attempt to reduce headcount after over-expansion before tech returns to its normal levels of growth.

Some data seems to agree with that idea. LinkedIn, a popular professional networking website, tracks job postings and industry data to get information about how industries are performing. Currently, it sees tech as a moderately tight labor market. This means that workers in tech are seeing a relatively good labor market, causing employers to compete for top talent. However, it isn’t seeing the hiring bonanza it did over the past few years.

Other moderately tight labor markets include entertainment, media, professional service, retail and real estate. Extremely tight markets where workers can easily find jobs and employers are fighting for talent include oil and gas, health care and accommodations.

Slack markets, where employers easily find workers, include government, education and consumer services.

The tightest industry in the U.S. is hospitality, which includes hotels, restaurants and bars. Employment levels in that industry remain below pre-pandemic highs, and employers are struggling to find workers despite wages increasing as much as 23% in hospitality.

What it means for investors

There’s been a lot for investors to worry about recently. Strong jobs reports and sticky inflation have led many to fear that the Federal Reserve will accelerate interest rate hikes that could weaken the stock market. Fears of a recession also have investors looking for the best way to invest their money.

If we’re headed for a rolling recession, one thing for investors to keep an eye on is news about which industries are facing the most trouble. Investors who can determine the sectors that will be spared from the rolling recession might be able to avoid its impacts.

On the other hand, if specific industries get hit hard, the companies in those sectors of the economy may sell at a low price, letting investors get a good deal on some shares. Active traders will be looking to identify deals and the pockets of the economy poised to continue growing.

If you’re looking for investing help, consider working with Q.ai. Using artificial intelligence, Q.ai helps build portfolios that succeed, even during a down market. You can choose from a variety of Investment Kits, like the Inflation Protection Kit, to make investing easy. Its unique Portfolio Protection tool also helps safeguard your portfolio during a recession.

The bottom line

Investing during turbulent markets and recessions can be stressful. Fortunately, you can earn a good return with a little effort and educated predictions.

Download Q.ai today for access to AI-powered investment strategies.