Economists are divided on the risk of a US recession


Is the US economy showing no signs of recession or is it boundingly into recession? Is it actually all in one?

More than a month after the country registered two consecutive quarters of economic contractionit still depends on who you ask.

Steve Hanke, professor of applied economics at Johns Hopkins University, believes the U.S. is heading for a “whopper” of a recession in 2023. While Stephen Roach of Yale University agree it will take a “miracle” before the US can avoid a recession next year – but it won’t be as bad as the downturn of the early 1980s.

But Nobel Prize-winning economist Richard Thaler say he currently sees nothing resembling a recession in the US, indicating recent low unemployment, high vacanciesand the fact that the economy is growing – just not so fast as prices.

And market participants are similarly divided.

Liz Ann Sonders, chief investment strategist at Charles Schwab, say a recession is more likely than a soft landing for the US economy right now, although it could be a rotating recession that hits the economy in the pockets.

While Steen Jakobsen, chief investment officer at Saxo Bank, was clear in a recent interview with CNBC: The US is not headed for a recession in nominal terms, not even in real terms.

Recent surveys reflect the split. A Reuters poll of economists in late August put the probability of a recession in the US at 45% within a year (most said it would be brief and shallow), and a Bloomberg poll estimated the probability of a downturn at 47. .5%.

Mixed signals

So why the discrepancy? It depends on what you focus on: the gross domestic product (GDP), or the labor market.

US GDP decreased 0.9% yoy in the second quarter and by 1.6% in the first, meeting the traditional definition of a recession. The slowdown in growth was caused by a number of factors, including falling inventories, investment and government spending. Inflation-adjusted personal income and the savings rate also fell.

In the US, however, a recession is officially declared by the National Bureau of Economic Research, which is unlikely to make a judgment on the period in question for quite some time.

What makes this time? differs from any other six-month period of negative GDP since 1947 is a lasting force in the labor market.

The closely monitored August nonfarm payroll data, released Friday, showed nonfarm payrolls rose by 315,000 – a solid increase, but the lowest monthly profit since April 2021.

It added to other recent releases that a slowdown in private payroll growthbut one much higher rate of new vacancies than expected.

Are we in a recession or something?

William Foster, senior credit officer at Moody’s, said jobs versus GDP remained the big debate among economic commentators, against the backdrop of the US Federal Reserve’s rapid change from accommodative monetary policy — where it contributes to the money supply to stimulate the economy — to a restrictive one, with interest rate hikes to address inflation, which reached 8.5% in July.

“We are coming from an extraordinary period not seen before in history,” Foster told CNBC by phone.

In making its decision, the National Bureau of Economic Research looks at real household income, real spending, industrial production and the labor market and unemployment — and those variables don’t provide clear recession signals, Foster said.

“The job market is still struggling to hire people, especially in the service sector,” he said.

Wider Indicators

Foster also noted that households still spend relatively much money, albeit at a slower rate of growth, made possible by the period in which households were saved during the pandemic.

However, at the recent Ambrosetti Forum in Italy, economist Joseph Stiglitz . said told CNBC he was concerned about the decline in real wages experienced by workers despite the tight labor market.

In addition to disagreeing on which indicators to focus on, commentators are also divided on what particular sectors are showing.

Investor Peter Boockvar say Latest Housing and Manufacturing Data Shows Why the U.S. Can’t Avoid a Recession, with National Association of Home Builders/Wells Fargo Housing Market Index fall into negative territory in August.

But according to Saxo Bank’s Jakobsen, “We still have double digits in the rental market. That won’t cause a recession.”

“Simply, people have enough money in the balance sheet to buy and rent an apartment and earn 20 to 30%. So [a recession] not going to happen.”

fleeting times

There are also broader reasons for the current level of debate, said Alexander Nutzenadel, a professor of social and economic history at Humboldt University in Berlin.

“We are living in a period of multiple shocks – from Covid 19 to energy prices to political deglobalization – that make forecasting extremely difficult,” he told CNBC by email.

This means that the economic performance of a highly developed country like the US is highly dependent on external factors.

The current situation of “stagflation” — when high inflation and economic stagnation occur simultaneously — is historically rare, he continued, but not entirely unprecedented.

“We had a similar moment in the 1970s, but from this experience we know that monetary policy has enormous difficulties in striking the right balance between fighting inflation and preventing a recession.”

Finally, he notes that the subject of economics has become “much more diverse” in recent years.

“There is no more ‘mainstream economics’, everything has become controversial, including theory, data and methods,” Nutzenadel said.

The practice of having a recession officially declared by the National Bureau of Economic Research has been questioned by some recently, with Tomas Philipson, a professor of public policy studies at the University of Chicago, saying. recently asked: “Why do we let an academic group decide? We should have an objective definition, not the opinion of an academic committee.”

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