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.
Consider the following developments:
- 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.”
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.
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 raise interest rates aggressively 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 recession.
Inflation is calming down, finally
There is a growing sense that perhaps the worst on the inflation front is over.
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.
Better-than-expected inflation reports reflect not only lower energy prices, but also easing of the stress in supply chains wrought by COVID-19.
what a downturn will feel like
In some ways, the recession debate is semantics.
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.
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.