US economy did not get the memorandum of recession

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The brutal GDP report, released on July 28, which showed the economy contracted for the second quarter in a row, left some emphasizing that the much-anticipated recession had already arrived.

And in some ways it makes sense: Since 1948, every period of back-to-back quarters of negative growth has coincided with a recession.

But ever since the GDP report came out, the recession-already-here argument has been seriously undermined. A series of events over the past 10 days suggest that the bearish calls are, at least, premature.

Yes, the economy is cooling off after last year’s gangbuster growth. But no, it is not facing the kind of decline that would qualify as bearish.

Consider the following development:

  • The economy added more than half a million jobs in July alone.
  • The unemployment rate fell to 3.5%, the lowest level since 1969.
  • Inflation remained cool (relatively speaking) in July for both consumers and producers.
  • Gas prices fell below $4 a gallon for the first time since March.
  • Consumer sentiment has jumped from record lows.
  • The stock market saw its longest weekly winning streak since November.

Mark Zandi, chief economist at Moody’s Analytics, is only convinced that the US economic recovery is on hold.

“It’s not a recession. It’s not even in the same universe as a recession,” Zandi told CNN. “It is absolutely wrong to say that it is.”

Zandi said the only indication of the ongoing slowdown are back-to-back quarters of negative GDP. Yet he predicted that the decline in GDP would eventually be reversed. And there are early indicators that GDP will turn positive this quarter.

Of course, this by no means means that the economy is healthy. It is not. Inflation remains very high.

And that doesn’t mean the economy is out of the woods. It is not.

Recession remains a real risk, especially over the next year and into 2024 as the economy absorbs the full effects of the Federal Reserve’s monstrous interest rate hikes.
And it is possible that the economy may falter so much in the coming months that economists at the National Bureau of Economic Research, the official arbiter of the recession, eventually declare that the recession began as early as 2022. But for now, it is too early to say. That’s the case.

job market still hot

The biggest issue in arguing that the recession has already begun is the fact that hiring accelerated — dramatically — in July. The United States added a staggering 528,000 jobs last month, returning payrolls to pre-Covid levels.

An economy that is in recession does not add half a million jobs a month.

“I don’t think the data has anything to do with where we are in the economy right now, we generally think about a recession,” Brian Deez, director of the White House National Economic Council, told CNN in a phone interview. Last week.

If anything, the job market is very hot. And that poses a problem for months to come because it allows the Federal Reserve to aggressively raise interest rates without causing widespread damage to the labor market in its bid to slow the economy.

The risk is that the Fed locks the brakes so hard that it slows the economy into a recession.

Inflation is calming down, finally

There is a growing sense that perhaps the worst on the inflation front is over.

The biggest inflation headache – gasoline prices – is finally coming down in a big way. The national average for regular gasoline has now fallen by more than $1 since hitting a record high of $5.02 a gallon in mid-June.

In addition to gasoline, diesel and jet fuel prices are also falling, easing inflationary pressure on the rest of the economy.

The energy cooldown in July reduced inflation metrics and should do the same, if not more, in August.

Inflation good news: Online shopping prices are suddenly falling sharply
The Bureau of Labor Statistics said last week that consumer prices in July were up 8.5 percent from a year earlier. While it remains alarmingly high, it is down from a 40-year high of 9.1% in June. And, month to month, prices changed little.
Wholesale inflation may also be at its peak. The Producer Price Index, which measures the prices paid to producers for their goods and services, fell more than expected in July on a year-on-year basis. And for the first time since the shutdown of the economy in April 2020, the PPI declined month-on-month.

The better-than-expected inflation report not only reflects lower energy prices, but also eases the stress in supply chains wrought by COVID-19.

what a downturn will feel like

In some ways, the recession debate is semantics.

Recession or not, Americans are clearly at a loss right now because the cost of living is so high. Real wages adjusted for inflation are shrinking. And although consumer sentiment as measured by the University of Michigan has climbed for two consecutive months, it is close to record lows.

However, for many, a real recession would be far more painful than it is in today’s environment.

A recession would likely involve the loss of not only hundreds of thousands but millions of jobs. Unable to make their mortgage payments, families will face foreclosure on their homes. And small, medium and large businesses will go down.

None of those things are happening in a significant way, at least not yet.

But flashing red lights in the bond market suggest that this may be changing.
Gas prices fall below $4 for the first time in months
The yield curve — specifically, the difference between the 2-year and 10-year Treasury yields — remains inverted. And in the past, it has been a pretty accurate predictor of recessions. It has preceded every recession since 1955.

Overall, recent economic data suggests a potential recession may be delayed, not canceled outright.

While the risk of a recession has eased over the next six to nine months, Zandi said, the risk of one has increased over the next 12 to 18 months.

“The prospect of a recession is still uncomfortably high,” he said.

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