Some people assume a recession is when real GDP contracts for two consecutive quarters as it did just recently. But this definition hasn’t been fulfilled in two out of the last three recessions. The 2020 downturn lasted just two months, not two quarters. In the brief 2001 recession real GDP didn’t contract for two quarters in a row either. So, it is likely that definition is out of date.
Q2 GDP fell at a 0.9% annualized rate as inventories, residential investment subtracted from growth after a 1.6% decline in the first three months of the year. Consumption, business investment remained positive, however.
That said, we do not believe the U.S. economy is in recession…at least not yet. Consumer spending has been too strong, as illustrated by the “spending on services” section in the chart below.
That’s because recessions are officially determined by a group of economists at the National Bureau of Economics (NBER) and they use a host of measures beyond real GDP to make it official.
Here’s how they describe their Business Cycle Dating criteria:
“The NBER’s definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
“The determination of the months of peaks and troughs is based on a range of monthly measures of aggregate real economic activity published by the federal statistical agencies. These include real personal income less transfers, nonfarm payroll employment, employment as measured by the household survey, real personal consumption expenditures, wholesale-retail sales adjusted for price changes, and industrial production. There is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions. In recent decades, the two measures we have put the most weight on are real personal income less transfers and nonfarm payroll employment”.
These indicators would have to go seriously south:
The typical U.S. household earned more than ever as of May—even after accounting for inflation. And their finances were secure, with consumer spending rising at a steady clip even as their saving rate remained elevated.
The U.S. economy added 1.6 million jobs in the first quarter of this year. Another 1.6 million jobs were added in the second quarter.
Those numbers don’t look recessionary to us.
If this is a recession that started in Q1, it's an extremely weird one. Unemployment rate is down 0.3pp over the past 6 months. In every recession since 1947, during that initial 6-month period, unemployment went up. Minimum increase is +0.3 (1973-75), median is +1.4.
Strong labor demand means a US downturn is unlikely in in 2022. Near-term recession models are sending a relatively benign signal -- 38% chance over 12 months.
The latest jobs figures released last Friday, Aug. 5, 2022 are really the icing on the cake.
The U.S. economy added 528,000 jobs in July, easily beating a Dow Jones estimate of a 258,000 increase. The unemployment rate ticked down to 3.5%, below the 3.6% estimate.
Job gains were broad-based and especially prominent in sectors such as education, health care, and government. Firms ramped up production and increased manufacturing payrolls by roughly 30,000 in July. New jobs in manufacturing are likely due to improved supply chains and this sector should continue to add jobs as remaining supply bottlenecks improve
So, over half a million jobs created in one month and a record low unemployment rate.
It’s official then- the U.S. economy is NOT in a recession.
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HALO Technologies Pty Ltd ABN 54 623 830 866 is a Corporate Authorised Representative No 1261916 of Macrovue Pty Ltd ABN 98 600 022 679 AFSL 484264. Macrovue Pty Ltd is a wholly owned subsidiary of HALO Technologies Pty Ltd.