False recession debate
Housing leads the downturn and recovery. What’s on the way?
Most of the debate on “recession” is wrong. I believe the recession started in May and the third quarter of negative GDP is on the way.
Some believe that declining growth in the third quarter would mean the start of a slowdown in the first quarter.
I attribute the slowdown to a drop in retail sales and a major drop in housing that both started in May.
It does not make a difference that. What matters is the size of the economy going forward. And I wouldn’t be surprised in the slightest by the negative fourth quarter growth.
History of the Fed-Blown Bubbles
The Fed has blown three big bubbles in a row: the dotcom bubble, the housing bubble, and what is now widely called the everything bubble.
In each case, the Fed blew bigger and bigger asset bubbles. The money effect stimulated spending and borrowing.
Low interest rates fueled a massive housing bubble again.
The Fed blew the housing bubble in the wake of the dotcom crash. The Fed launched the Everything Bubble in the wake of the housing crash and the Great Recession.
The Everything Bubble culminated with unprecedented pandemic stimulus, QE and absurdly low interest rates.
De-globalization is underway. One major effect is high inflation.
The Fed no longer has the wind of globalization pushing prices down. On the face of it the inflationary aspects of globalization are strictly underway.
Another reason not to expect the Fed to come to the rescue with QE and lower rates any time soon.
For discussion, please consider de-globalization: New supply chains are inefficient and will drive up inflation.
Expect long periods of weak growth
It’s comeback time for three consecutive bubbles. Expect a long period of weak growth, no matter what the label.
There will be no bailout this time. Nor will the Fed quickly reverse interest rate policy for fear of stimulating more inflation and unwanted demand.
Unless asset housing prices crash, housing sector data will remain weak for a long time, with the Fed unable or unwilling to offer more support.
tends to start and end a housing recession. But where is housing going if prices stay high with 5+ percent mortgage rates?
In general there is a possibility of a property accident. If so, the effect of money on spending rates would be enormous.
What about jobs?
- The Covid-recession was very short, two months, not even a full quarter of declining growth. The pandemic was also accompanied by the largest job loss in history.
- I expect the opposite of the Covid-recession: a longer period of weak growth with relatively strong unemployment numbers.
I’ve heard countless times over the past six months that jobs are too strong for a recession.
Such a thing is bullshit.
We can easily see three or four quarters of negative GDP with relatively strong jobs because we never fully offset the damage caused by the pandemic.
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Employment Level in Retirement Age Groups
Age 60+ Employment
- In 2022: 22.09 million
- In 2008: 13.46 million
- In 1999: 8.22 million
- In 1981: 7.21 million
More than 22 million people aged 60 or older are still working. We’ve never seen anything like this before, so don’t expect it to be a model for pre-recession.
Millions of these people will retire. Employment can drop significantly when these boomers and Gen X workers retire, but falling employment and rising unemployment are not the same thing.
I’m calling BS on the second straight amazing jobs report, understanding why
On Aug. 5, I commented that I’m calling BS on the second straight amazing jobs report, understand why.
While I expect jobs (more specifically unemployment) to strengthen in this recession, the numbers don’t go down.
Summary since March
- Employment -168,000
- Jobs +1,680,000
It’s a bit overkill and I smell modifications or wild data coming one way or another.
Another possibility is an overabundance of jobs, reducing retirement. As of January, 22 million people of retirement age were still working.
The Fed’s hands are tied
Jobs data speaks for itself. That’s half of the Fed’s mandate. If there is a job (unemployment) Relatively As I expect, the Fed will meet half of its mandate.
The Fed’s other mandate is price stability. Everyone on the planet knows the Fed is stuck. It gets grade F.
The Fed doesn’t want another Grade F. It will err on the side of caution unless there is a credit event or a huge increase in unemployment.
Fear of de-globalisation, asset bubbles, and inflation fed the reluctant to cut. Higher rates and higher housing prices will not stimulate that important cyclical aspect of the economy.
The cyclical component of GDP, the most important chart in the macro
In case you missed, please pay attention to the cyclical components of GDP, the most important chart in the macro
My Follow-up Article A Big Housing Bust Is the Key to Understanding This Recession
Housing leads to recession and recovery and housing rates remain weak for long periods of time.
Add it all up and you have the opposite of a Covid-recession, a long period of economic weakness with minimal rise in unemployment.
It doesn’t matter whether you label it a recession or not. In addition, NBER may not even announce the end of the recession. This has already happened once.
This post originated on MishTalk.Com
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