Jul 24, 2022 - Economy

A weird economy may give way to recession — or not

Illustration of a stack of hundred dollar bills being erased

Illustration: Sarah Grillo/Axios

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.

Why it matters: That same weirdness has opened a gulf between what official data reflects and the perception of everyday consumersrelatively 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.

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.

The bottom line: Hence, the weirdest economy ever that may even end up dodging recession. Maybe.

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