Of late, many people have been asking me whether we are going to have a recession or if we are already in one.

Technically, all we need are two consecutive quarters of negative gross domestic product (GDP) growth rates to be in a recession. The first quarter of this year had us at a negative GDP read (-1.5%), so we are halfway there. Having said that, the weekly data releases for this quarter have been a mixed bag, and it’s rather difficult to discern where GDP will end up.

The Atlanta Federal Reserve does input the various components that go into GDP and uses these incoming data points to create a somewhat real-time forecast called GDPNow. It’s not a perfect tool because one input might skew things quite a bit. However, there is also no subjectivity in the measurement, so I can use it to simply track the impact of each GDP data point as it is released.

As of the end of June, GDPNow is showing a 0.3% GDP growth rate for the second quarter. If we do indeed eke out an even slightly positive growth rate, we will not technically be in a recession. If GDP ends up being even slightly negative, however, we will indeed be in a recession. The second-quarter GDP release will be out on July 27.

Most experts are saying that whether it’s now or within the next 18 months, we will probably enter a contractionary/recessionary period, although it’s not likely to be severe or protracted. So much depends upon the trajectory of the energy debacle, primarily driven by the Ukrainian situation and the movement away from new oil drilling, the supply chain issues and the inflation it’s causing, as well as the related COVID shutdowns in other parts of the world, including one of our biggest trade partners, China.

These are significant headwinds, but I am looking beyond that to the variables that increase the probability of anemic economic growth long-term. Increasingly, there is talk about stagflation, which is the undesirable combination of inflation alongside low economic growth rates. Typically, these periods are accompanied by high unemployment. In today’s environment of low population growth rates with a concomitant tsunami of retirees, low labor participation and decreased international in-migration, I don’t think unemployment is going to hit high levels like it has in past recessionary periods.

What we have now is not enough workers (even if the labor participation rate increased), which I would argue is in many ways worse than high unemployment. And that’s because an improved economy fixes high unemployment whereas our demographic and immigration challenges have no quick fix.

The former because we can’t snap our fingers and create working-age adults out of thin air, and the latter because immigration is a politically charged issue with a paralytic Congress unlikely to move fast enough. And not enough workers mean business growth hits a wall at some point — even if the Fed is successful in “cooling” consumer demand and businesses pull back on hiring.

But then we are left with high prices, in part created by persistent upward pressure on wages because we simply don’t have enough workers while ironically we have declining real wages for workers because of the higher cost of living. Meanwhile, business growth in many industries will have high labor costs in combination with dampened demand primarily due to inflation.

And there you have self-prophesizing inflation alongside low economic growth rates, or stagflation. The difference this time is that we have an inherent and entrenched shortage of labor, which on its own can choke economic growth. The lack of working-age people has been compromising economic growth in Japan and Europe for many years. This is the structural challenge brought about primarily by a demographic transition.

And then there is the energy transition. As we all know, energy costs are one of the most painful and acute causes of our current inflationary woes. Energy costs are up 30.3% over the past 12 months and while that will certainly abate some, it is not likely that “cheap” energy is a trend of the future.

Most of the developed world is on the path to renewable energy sources — and at a relatively quick clip. But the developed countries have not coordinated the bridging energy source, natural gas, and now we have a painful energy transition.

The move to electric vehicles has also accelerated and this all means that investment in new oil drilling is not what it used to be. I don’t think $5 per gallon gasoline is going to persist, but the average trend of gas prices will be higher long-term. Pretty much everything we consume is impacted by transportation costs.

Similarly, within the food realm we have an unfortunate transition in the reality of climate change. Increasing climate impacts on some of the world’s agricultural hubs, alongside the fact that Russia and Ukraine account for 24% of the world’s wheat has many experts saying we are entering a food crisis.

None of this is very uplifting, but looking at the data soberly can help us be more proactive in the strategies used to mitigate the painful aspects of pivotal transitions.

There are ample examples in human history where new technologies are created and people figure out how to adapt in ways that improve humanity longer term. I’ll end on that more optimistic note.

About the writer: Tatiana Bailey is director of the University of Colorado at Colorado Springs Economic Forum. Registration has opened for this year’s forum, to be held Sept. 1. Go to https://uccseconomicforum.com/ for details.

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