And in a way it makes sense: since 1948, every period of successive quarters of negative growth has coincided with a recession.
But the recession-is-already-here argument has been severely undermined since that GDP report came out. A series of events over the past 10 days suggests those recession calls are premature, to say the least.
Consider the following developments:
- In July alone, the economy added more than half a million jobs.
- 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 confidence has returned from record lows.
- The stock market recorded its longest weekly streak since November.
Mark Zandi, chief economist at Moody’s Analytics, has only grown more confident that the US economic recovery is intact.
“This isn’t a recession. It’s not even in the same universe as a recession,” Zandi told CNN. “It’s just plain wrong to say it is.”
Of course, all this does not mean that the economy is healthy. It’s not. Inflation remains much too high.
And all this does not mean that the economy is out of trouble. It’s not.
Labor market is still hot
The biggest problem with arguing that a recession has already started is the dramatic increase in hiring in July. The United States added a whopping 528,000 jobs last month, bringing payrolls back to pre-Covid levels.
An economy in recession does not add half a million jobs in one month.
“I don’t think anything in the data about where we are now in the economy is consistent with what we typically think of as a recession,” Brian Deese, director of the White House National Economic Council, told CNN in a statement. phone interview last week.
If anything, the job market is too hot. And that’s a problem for the coming months, as it allows the Federal Reserve to aggressively raise interest rates without causing widespread damage to the labor market in its attempt to slow the economy.
The risk is that the Fed will eventually hit the brakes so hard that it will slow the economy into recession.
Inflation is finally cooling down
There is a growing sense that perhaps the worst is over on the inflation front.
In addition to gasoline, the prices of diesel and jet fuel are also falling, reducing inflationary pressures on the rest of the economy.
The energy cooldown cut inflation rates in July and should do the same, if not more, in August.
The better-than-expected inflation reports reflect not only lower energy prices, but also alleviation of stress in supply chains distorted by Covid-19.
What would a recession feel like?
In some ways, the recession debate is semantics.
For many, however, an actual recession would be far more painful than the current environment.
A recession would likely result in the loss of not only hundreds of thousands but also millions of jobs. Unable to make their mortgage payments, families would face foreclosure on their homes. And small, medium and large companies would go under.
None of those things are happening in any significant way, at least not yet.
All in all, recent economic data suggests that the potential recession may have been delayed and not canceled altogether.
While the risk of a recession appears to have decreased in the next six to nine months, Zandi said the risk of a recession in the next 12 to 18 months has increased.
“The chances of a recession are still uncomfortably high,” he said.