The US economy didn’t get a note that it was actually supposed to be in a recession.
The Brutal GDP report It was released on July 28, which showed the economy contracting for the second consecutive quarter, leading some to insist that a much-feared recession had already arrived.
This makes sense in some ways: since 1948, each successive quarter of negative growth has coincided with stagnation.
But the recession argument here has been severely undermined since the release of the GDP report. A series of events in the past 10 days suggests that these calls for stagnation are, at least, premature.
yes The economy is calming down After the growth of gangbusters last year. But no, it doesn’t seem to be experiencing the kind of meltdown that could count as a slump.
Consider the following developments:
- Economy added more than Half a million jobs In July alone.
- The unemployment rate fell to 3.5%, the lowest level since 1969.
- Inflation calmed down (relatively) in July for both consumers and consumers Producers.
- Gas prices fell Less than $4 a gallon For the first time since March.
- Consumer morale has Bounce back from record lows.
- The stock market had its longest streak of weekly gains since November.
Mark Zandi, chief economist at Moody’s Analytics, increased his confidence that the US economic recovery is sound.
“This is not a recession. It’s not even in the same universe as a recession,” Zandi told CNN. “It’s totally wrong to say that it is.”
Zandi said that the only thing that indicates continued stagnation is those consecutive quarters of negative GDP. However, he expected that these GDP declines would eventually be revised. And there they are Early indications that GDP will turn positive this quarter.
Of course, none of this means the economy is sound. it’s not like that. Inflation is still very high.
None of this means that the economy is out of trouble. it’s not like that.
Recession remains a real risk, especially in the coming year and in 2024 as the economy absorbs the full impact of the Federal Reserve. Significantly high interest rates.
And the economy could still falter so much in the coming months that economists at the National Bureau of Economic Research, The official ruling on recessionsWe finally report that the recession started in early 2022. But for now, it’s too early to say that’s the case.
The biggest problem in the argument that a recession has already begun is the fact that employment rose – dramatically – in July. The US added a staggering 528,000 jobs last month, bringing payrolls back to pre-Covid levels.
An economy in recession does not add half a million jobs in a month.
“I don’t think anything in the data about our current state of the economy aligns with what we think is a recession,” Brian Dees, director of the White House National Economic Council, told CNN in a phone interview. last week.
If anything, the job market is very hot. This is a problem for the coming months as it allows the Federal Reserve to raise interest rates aggressively without causing widespread damage to the labor market in its attempt to slow the economy.
The danger is that the Fed ends up slamming the brakes so hard that it slows the economy into recession.
There is a growing sense that the worst may be over on the inflation front.
The biggest inflation problem – gasoline prices – has finally receded considerably. Since then, the national average for regular gasoline has fallen by more than $1 hit a record $5.02 a gallon mid-June.
In addition to gasoline, diesel and jet fuel prices are also falling, relieving inflationary pressure on the rest of the economy.
The energy slowdown lowered inflation measures in July, and it should do the same, if not more, in August.
The Bureau of Labor Statistics said last week that Consumer prices were 8.5% higher in July than a year ago. Although this remains alarmingly high, it is down from a 40-year high of 9.1% in June. And month after month, prices haven’t changed a bit.
Wholesale inflation may also be at its peak. Producer Price Index, which measures the prices paid to producers for their goods and services, slowed in July more than expected on an annual basis. The producer price index fell on a monthly basis for the first time since the economy shut down in April 2020.
The better-than-expected inflation reports not only reflect lower energy prices, but also the easing of pressure in supply chains defended by the Covid-19 virus.
In some ways, the stagnation debate is semantic.
stagnation or not, It’s clear that Americans are getting hurt now Because the cost of living is very high. Real wages, adjusted for inflation, shrink. And although consumer sentiment as measured by the University of Michigan has risen two months in a row, Still near record lows.
However, for many, the actual recession will be far more painful than today’s environment.
An economic recession will likely involve the loss of not just hundreds of thousands but millions of jobs. Unable to make the mortgage payments, families will face foreclosure on their homes. Small, medium and large companies will collapse.
None of these things happen in a significant way, at least not yet.
But Flashing red lights in the bond market Suggest that that could change.
The yield curve — specifically, the gap between 2-year and 10-year Treasury yields — remains inverted. And in the past, this was He was a frighteningly accurate forecaster of recessions. I ran over Every slump since 1955.
Overall, recent economic data suggests that a potential recession may have been delayed, not canceled outright.
Zandi said that while the risk of a recession over the next six to nine months appears to have decreased, the risk of a recession in the next 12 to 18 months has risen.
“The odds of a recession remain uncomfortably high,” he said.
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