When it hasn’t been determined to be a recession by the NBER, of course. Jeff Cox of CNBC reports the latest news on gross domestic product:
The U.S. economy contracted for the second straight quarter from April to June, hitting a widely accepted rule of thumb for a recession, the Bureau of Economic Analysis reported Thursday.
Gross domestic product fell 0.9% at an annualized pace for the period, according to the advance estimate. That follows a 1.6% decline in the first quarter and was worse than the Dow Jones estimate for a gain of 0.3%.
Officially, the National Bureau of Economic Research declares recessions and expansions, and likely won’t make a judgment on the period in question for months if not longer.
But a second straight negative GDP reading meets a long-held basic view of recession, despite the unusual circumstances of the decline and regardless of what the NBER decides. GDP is the broadest measure of the economy and encompasses the total level of goods and services produced during the period.
“We’re not in recession, but it’s clear the economy’s growth is slowing,†said Mark Zandi, chief economist at Moody’s Analytics. “The economy is close to stall speed, moving forward but barely.â€
There are several points that need to be considered here. First, the analyses of the National Bureau of Economic Research (NBER) are retrospective not prospective. You can’t tell which way the economy is going from the NBER—only where it’s been.
Second, what happened in 2020 probably shouldn’t be called a recession. We don’t actually have a word for it at this point because it has never happened before. What happened is that governments shut down a big chunk of the economy for several quarters and as the shutdowns ended the economy bounced back.
Third, during a period of high inflation like the present the economy can grow nominally but actually decline. That the economy is actually shrinking is not particularly good news but it’s not surprising given the actions of the Federal Reserve.
My own opinion is that we’re probably already experiencing a mild recession and that the NBER will pronounce it in due course (probably during the 4th quarter with a start date in the second or third quarter). I’m sure there will be plenty of catastrophizing about it and, realistically, for some people is will, indeed, be a catastrophe. Blame Congress. It’s practically always Congress’s fault.
What I find most interesting about all this kabuki is that people are so willing to ascribe, excuse actually, economic contraction to a pullback in Congressional stimulus monetized by the Fed, but not acknowledge those same entities actions in previously artificially propping up the economy. Its a one way view.
As I’ve pointed out repeatedly, we are in a box. Consumers have gone into debt to maintain spending. Revolving debt is very high. The piggybank of home equity has vaporized. Inflation is further eroding spending power. Not a good mix. Just because the unemployment rate remains low due to low labor participation does not mean spending power is out there.
Someone pointed out; looking at historical data; every previous period of 2 quarters of declining GDP was retrospectively labeled as being in a recession….
My guess is NBER will announce it’s a recession on Nov 9.
What’s more concerning is it looks like the Federal Reserve is/will hike rates well into a recession.
As for the last “recession†– I just label that as part of a very strange economic cycle. The economic cycle from March 2020 – March 2022 was extremely compressed — the decline was quick, the recovery was quick, the topping out process was quick — something like 5 times quicker then the previous cycle from 2008-2020.
Maybe a little more subtle than that but, yes, that is my thinking.
That has been getting worse and will get worse yet. A key problem is that Gen Xers and Millennials don’t have the dough to pay the prices that Baby Boomers need to get and in all likelihood never will. Said another way homes are not a retirement plan. The notion that all of the jobs that would be added to the economy would be minimum wage jobs and we’d still maintain our standard of living has always been a fantasy.
A lot of Gen-Xers, at least my peers, also borrowed against investments.
And once again, I’m reminded of the importance of luck and timing. We moved here and bought our house in 2018; our mortgage is 2.5%. If we tried to move here today to the same house, we’d be looking at over twice the interest rate on a home that was $300k more expensive. I feel very lucky we got here when we did and that we don’t plan to move for several years at least.
Anyway, whether we are technically in a recession or not is academic. Most people sense that the economy is a hot mess regardless of the official numbers. But among those who are fortunate and aren’t feeling the effects are the pundit, media, and political classes, perhaps not coincidentally. Hence the reporting and “analysis” of this will be mostly about political effects.
You bring up an interesting point, Andy. Based on the Fed’s actions and pronouncements by the end of the year home mortgage interest rates (not to mention HELOCs) will be somewhere between 6% and 10%. That will impede mobility considerably.
I guess that’s actually good news for some states like California, New York, and Illinois. Not so good for individuals and businesses.
“Said another way homes are not a retirement plan.”
And really never have been, if true carrying costs are considered. Few people really consider the full impact of financing costs, structure and liability insurance costs, property taxes, miscellaneous non-rental operating costs, and of course the inevitable maintenance costs. Many who bought the past couple years will also suffer capital depreciation.
To Andy’s point, I have paid cash for the last several homes. But the current one could be financed at 2%. That’s free money.
“That will impede mobility considerably.”
Some. Situational. My daughter just moved from DC to Richmond, VA. Studio apt at $2400/mo in DC to a quite satisfactory (for a 24 yr old) $1500/mo one BR apt.
Separately, I’m hearing more and more anecdotes about companies demanding a return to office presence. It starts with 1 day a week. Then 2………. Consumers are going to get caught in a vice: commuting costs; rising rents and property taxes vs purchasing power. It will result in the second and third tier cities (like Richmond) rising and the traditional cities continuing to die. Of course the DC’s of the world do have one advantage: every third building either has a sign or graffiti reminding one that Black Lives Matter. In case you forget.