The recession roller coaster
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Economists have been on a roller coaster in recent years: A recession looks likely … a recession looks unlikely … the recession is back on … the recession is back off … the recession is imminent ... the recession is far off.
Why it matters: At this moment, the economic data shows non-recessionary conditions. But the constant cycle of conflicting data and changing predictions has made it hard to trust that any forecast will stick.
- No one is certain whether the economy's steady cooldown is morphing into something worse.
How it works: Conflicting economic data has fueled sharp swings in sentiment just in the past few weeks.
The pessimism: Consumers are falling further behind on credit card payments. At the beginning of the month, we learned the unemployment rate rose to 4.3% in July.
- That increase tripped a reliable indicator (at least in the past) that suggested high risk of a recession. Unemployment filings in late July spiked to the highest in nearly a year.
The optimism: That jump in jobless claims has since reversed. Economists are divided on whether the unemployment rate is rising for more benign reasons.
- New data this week showed consumer spending surged in July by the most in over a year, reversing a slump the previous month. That kind of spending activity is inconsistent with a recession.
- Adding to the good news: inflation looks like it's over (really this time).
- An early forecast from the Atlanta Fed shows the economy likely grew at a solid 2% rate in the third-quarter.
Reality check: Bumpy, conflicting economic data can signal a turning point in the economy. That looks to be exactly what's underway now.
- The Fed faces a similar conundrum that will impact borrowing costs.
- An economy that looks like it is cooling too quickly could nudge the central bank to cut interest rates by a half-percentage point.
- If it looks like it is holding up against receding inflation, officials could opt for a quarter-point cut.
What to watch: Early next month, we'll find out how the labor market fared in August.
- If the unemployment rate continues to rise and job gains start to shrink, expect the recession chatter to heat back up.
- Fed chair Jerome Powell will give an update on his views on the economy in a high profile speech next week at an annual conference hosted by the Kansas City Fed in Jackson Hole, Wy. next week.
