The US economy did not receive a recession note

A brutal GDP report released on July 28 showed the economy contracting for a second quarter in a row, with some arguing that the much-feared recession is already here.

Every quarter of negative growth since 1948 coincided with a recession.

However, since the GDP report was released, the claim that the recession has already begun has been greatly undermined. A series of events over the past 10 days suggests that these signs of recession are at least premature.

Yes, the economy is cooling after last year’s massive growth. But no, it doesn’t look like it’s suffering from what would be considered a recession.

Consider the following deployments.

  • The economy created more than half a million jobs in July alone.
  • The unemployment rate fell to 3.5%, the lowest level since 1969.
  • Inflation cooled (relatively speaking) in July for both consumers and producers.
  • Gasoline prices fell below $4 a gallon for the first time since March.
  • Consumer sentiment has recovered from record lows.
  • The stock market posted its longest winning streak since November.

Moody’s Analytics chief economist Mark Zandy has become more confident that the U.S. economic recovery is intact.

“This is not a recession. It’s not even the same world as a recession,” Zandi told CNN. “It’s plain wrong to say yes.”

Zandi said the only sign of an ongoing recession is consecutive quarters of negative GDP. Still, he predicted that this decline in GDP would eventually be corrected. There are also early signs that GDP will turn positive this quarter.
Inflation took a breather in July, fueling expectations that inflation had peaked

Of course, this does not mean that the economy is healthy. it’s not. Inflation is still too high.

And this doesn’t mean the economy is out of the woods.

A recession remains a real risk, especially next year and 2024, as the economy fully absorbs the impact of an extraordinary rate hike by the US Federal Reserve (Fed).
And it remains possible that the economy will falter significantly in the coming months, with economists from the National Bureau of Economic Research, the official arbiter of the recession, finally declaring the recession began in early 2022. . that’s right.

Job Market Still Hot

The biggest problem with claiming the recession has already started is the fact that employment increased dramatically in July. The US added a staggering 528,000 jobs last month, bringing salaries back to pre-Covid levels.

An economy in recession doesn’t add half a million jobs in a month.

“Nothing in the data about the current state of the economy matches what we normally think of as a recession,” Brian Dees, director of the White House’s National Economic Council, said in a telephone interview with CNN. I think,’ he said. last week.

If anything, the job market is too hot. And that’s a matter of the coming months as it allows the Federal Reserve to aggressively raise interest rates without causing widespread damage to the labor market to slow the economy.

The risk is that the Federal Reserve will hit the brakes hard, slowing the economy into recession.

Inflation finally subsided

Perhaps on the inflation front, there is a growing sense that the worst is over.

Gasoline prices, the biggest inflation headache, have finally eased significantly. The national average for regular gasoline is now down more than $1 since hitting a record high of $5.02 per gallon in mid-June.

Not only gasoline, but also diesel and jet fuel prices are falling, easing inflationary pressures on the economy as a whole.

The energy cooldown should lower July’s inflation indicator and August to do the same, if not more.

Good Inflation News: Online Shopping Prices Are Falling Sharply
The Bureau of Labor Statistics announced last week that consumer prices rose 8.5% in July from a year earlier. That remains surprisingly high, but is down from his 40-year high of 9.1% in June. And from month to month the price hardly changed.
Wholesale inflation may also be peaking. The Producer Price Index, which measures the price paid to producers for goods and services, slowed more than expected year-on-year in July. PPI also fell month-on-month for the first time since the economy shut down in April 2020.

The better-than-expected inflation report reflects not only lower energy prices but also easing stress on supply chains disrupted by Covid-19.

what does depression feel like

In a way, the recession argument is semantic.

Recession or not, Americans are clearly suffering right now because the cost of living is too high.Inflation-adjusted real wages are shrinking. And consumer sentiment, as measured by the University of Michigan, rose for the second month in a row, but remains at a record low.

But for many, an actual recession would be far more painful than the current environment.

A recession could cost millions, not just hundreds of thousands of jobs. Mortgage payments are no longer possible and the family faces a foreclosure on their home. And small and medium enterprises, large corporations will go bankrupt.

None of these things are happening in any significant way, at least not yet.

But flashing red lights in the bond market suggest that things could change.
Gas prices drop below $4 for first time in months
The yield curve, specifically the difference between 2-year and 10-year Treasury yields, remains inverted. And in the past, this has been an eerily accurate predictor of recessions. It has preceded every recession since 1955.

Overall, recent economic data suggests that a potential recession may have been delayed rather than canceled outright.

The risk of a recession in the next six to nine months appears to have decreased, but the risk of a recession in the next 12 to 18 months has risen, according to Zandi.

“The odds of a recession remain uncomfortably high,” he said.

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