A weird economy may give way to recession — or not
The U.S. economy is throttled by inflation, volatile markets and weaker activity, all suggesting growth is softening but hasn’t fallen off of a cliff — yet.
- Even still, consumer spending and job creation remain robust, contributing to what Axios’ Neil Irwin recently called “the great weirdness” of the U.S. economic status quo.
Why it matters: That same weirdness has opened a gulf between what official data reflects and the perception of everyday consumers — relatively flush with cash but ravaged by white-hot prices eating into spending power.
- The irony is that consumers, though in a glum mood, are keeping growth and inflation afloat by continuing to spend. That, in turn, has emboldened companies to pass that along in higher prices.
- Also, the labor market is as tight as it's ever been, awash in unfilled positions (hello Great Recession), and the economy is generating above-average jobs growth despite spiking prices.
Driving the news: U.S. gross domestic product figures due this Thursday may show that the economy posted its second consecutive quarter of contraction — satisfying the textbook definition of recession even if officials are loath to deem it such.
Even if GDP posts a negative print this week, it’s unlikely to settle the raging recession debate, not least of which because it could take months or longer for the National Bureau of Economic Research (NBER) to make a formal declaration.
- The NBER’s criteria is a bit different from conventional metrics of what constitutes a recession.
- With unemployment still historically low and consumers still opening their wallets with reckless abandon, the NBER’s more stringent benchmarks haven’t been met (as far as we know).
- The NBER’s verdict may not be conclusive, if it comes at all. For example, in November 2001, the organization declared a contraction began in March, but didn’t call its end until … July 2003.
What they’re saying: “Net, net, consumers are still spending their hearts out which keeps the recession from becoming a reality,” according to FWDBonds chief economist Chris Rupkey.
- “The old rule of thumb from the 80s is that three consecutive months of declining retail sales meant the economy had fallen off the cliff and into the recession abyss... [but] the economy hasn’t even entered the danger zone that warns recession is imminent.”
Zoom out: Still, that’s not stopping segments of the market from rendering an early verdict, with cracks starting to form in the foundation of what once buttressed solid growth.
- Private sector output is flashing contraction signals, while jobless claims have spiked to their highest level since last fall.
- Mixed second-quarter earnings have been punctuated by nervous CEOs warning about growing risks.
- And addled markets are pricing in chances of the dreaded "r-word" that dare not speak its name, with Bank of America making a “mild” one its base case for 2022.
- And a recent survey by Corbin Advisors found that nearly 70% of the investors they spoke to are “significantly concerned or concerned” about a recession. More than half expect a contraction later this year, which is likely to feature cost-cutting and layoffs, the data found.
The bottom line: Hence, the weirdest economy ever that may even end up dodging recession. Maybe.