Economists are divided over the likelihood of a US recession. And the employment statistics isn’t helping.


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Is the US economy exhibiting no symptoms of a recession or is it on its way to one? Isn’t it already in one?

It still depends on who you question more than a month after the country saw two consecutive quarters of economic recession.

Over the previous month, academics and analysts have told CNBC that a recession is anywhere from inevitable to unlikely.

The ongoing discussion indicates a disagreement over whether to emphasise decreasing real GDP or strength in personal expenditure and the labour market.

“We live at a period of numerous shocks, from Covid-19 over energy pricing to political deglobalization,” one analyst remarked.

According to Steve Hanke, a professor of applied economics at Johns Hopkins University, the United States is on track for a “whopper” recession in 2023. While Yale University’s Stephen Roach agrees that it will take a “miracle” for the United States to avoid a recession next year, he believes it will be less severe than the early 1980s downturn.

Despite this, Nobel Prize-winning economist Richard Thaler believes the United States is not in a recession right now, citing recent low unemployment, significant job vacancies, and the fact that the economy is growing – just not as quickly as prices.

Similarly, market players are divided.

According to Liz Ann Sonders, chief investment strategist at Charles Schwab, a recession rather than a soft landing is more likely for the US economy right now, however it might be a rotational recession that hits the economy in patches.

While Steen Jakobsen, chief investment officer at Saxo Bank, stated unequivocally in a recent interview with CNBC that the United States is not headed for a recession in nominal terms, it is in real terms.

Recent polls indicate the divide. A Reuters poll of analysts in late August estimated the likelihood of a U.S. recession within a year at 45% (with most thinking it would be brief and shallow), while a Bloomberg poll put the likelihood at 47.5%.

So, what’s the deal? It depends on whether you are interested in GDP or the labour market.

GDP in the United States fell 0.9% year on year in the second quarter and 1.6% in the first, matching the standard definition of a recession. A number of reasons contributed to the growth slowdown, including falling inventories, investment, and government spending. Personal income and savings rates have similarly fallen in inflation-adjusted terms.

In the United States, however, a recession is formally declared by the National Bureau of Economic Research, which is unlikely to reach a decision on the period in issue for some time.

The persistent resilience in the labour market distinguishes this era from every other six-month stretch of negative GDP since 1947.

The carefully anticipated nonfarm payrolls statistics for August, released Friday, showed a 315,000 increase — a significant increase, but the lowest monthly growth since April 2021.

It contributed to recent data showing a slowing in private payroll growth but a significantly greater rate of new job opportunities than projected.

According to William Foster, senior credit officer at Moody’s, the big debate among economic commentators continues to be jobs-versus-GDP, against the backdrop of the US Federal Reserve quickly shifting from an accommodative monetary policy — where it adds to the money supply to boost the economy — to a restrictive one, involving interest rate hikes to combat inflation, which hit 8.5% in July.

“We’re coming out of an incredible moment in history,” Foster told CNBC over the phone.

It contributed to recent data showing a slowing in private payroll growth but a significantly greater rate of new job opportunities than projected.

When reaching its choice, the National Bureau of Economic Research considers real income for households, real expenditure, industrial production, the labour market, and unemployment – and those indicators, according to Foster, aren’t providing unambiguous recession warnings.

“The job market continues to struggle to hire individuals, particularly in the services sector,” he said.

Foster also remarked that families were still spending reasonably strongly, albeit at a reduced rate of growth, thanks to the time of household savings building throughout the pandemic.

Commentators are divided not only on the indicators to focus on, but also on what specific industries are displaying.

The National Association of Home Builders/Wells Fargo Housing Market Index fell into negative territory in August, according to investor Peter Boockvar, demonstrating why the United States will not be able to avoid a recession.

However, according to Jakobsen of Saxo Bank, “we still have double digit gains in the rental market.” That will not cause a recession.


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