Recession Obsession: Warnings Grow But No One Knows For Sure

New York
CNN business

Don’t expect the rebound in the US economy in the third quarter to calm the chorus of recession calls.

The US economy grew a stronger-than-expected 2.6% from July to September, after contracting 1.6% in the first quarter of the year and 0.6% in the second quarter.

The welcome GDP report comes amid near-daily recession warnings from bank executives, business economists, think tanks and former Treasury secretaries. They focus less on the growth deficit in the first half of the year and more on the uncertainty of the future.

But as fear grows, today’s news is a reminder that no one knows for sure whether the US economy will go into recession. Also, most of these forecasters agree that even if we do have a recession, it would be mild.

First, let’s see how we got here:

The economy rebounded sharply in the wake of the Covid-19 pandemic, but inflation is at 40-year highs and now, higher interest rates as the Federal Reserve tries to curb rising prices. An imbalance between supply and demand and a labor shortage reduced US gross domestic product in the first and second quarters, meeting a technical definition of a recession, which is where the red flags started to go off.

Second, the circumstances are different this time:

As consumers face these challenges, household finances are in much better shape today than they were at the start of the 2008-2009 financial crisis. The job market is still strong, with unemployment at a half-century low.

Third, we will not know whether we are or were in a recession until it is over:

A recession may be coming. Or not Or here it is. Or we have already mixed one. The official arbiter of that distinction is the National Bureau of Economic Research, whose economists look at jobs, industrial production, retail sales and other data to determine when a recession has started and ended.

The last recession, at the beginning of 2020, when the pandemic started, lasted only two months.

Also: no one knows for sure. There’s an old joke about a frustrated President Harry Truman who, tired of hearing his economic team contradict themselves, said, “Give me a one-handed economist! All my economists say: On the one hand, on the other…

The US economy is a 21 trillion dollar giant, the largest and most dynamic in the world. Economists have always — sometimes famously — disagreed on how to measure it.

And finally, it’s a matter of perspective.

A recession is scary. People lose their jobs and businesses close. But inflation is also scary. And it will take a slowing economy, perhaps even a recession, to control rising prices.

“That’s why I’ve tried to push people away from the question of whether there was a recession or a recession in the first half because inflation was pretty bad,” said Mark Hamrick, senior economic analyst at CNN’s Early Start.

The pain of inflation would be worse than the pain of rising unemployment in a recession.

“What do recessions and inflation have in common?” Hamrick said. “People are separated from the ability to buy the things they want and need. And in this case the issue of inflation has actually affected more people than the higher number of unemployed in that situation.’

Again, no one knows for sure. But even the staunchest recessionists believe that a recession—if it happens—would be mild.

Former Treasury Secretary Larry Summers told my colleague Wolf Blitzer that a recession became “almost inevitable” when inflation rose above 5 percent, but noted, “I don’t think it’s going to be any different. [2008] like the financial crisis… or the horrible things that happened after the pandemic started. And entrenched inflation, he says, is far more damaging than a brief recession.

JPMorgan Chase CEO Jamie Dimon has been warning of an economic “hurricane” for months, but he admitted to my colleague Richard Quest at a conference in Saudi Arabia that the recession would be manageable.

“There are a lot of things on the horizon that are bad and could put the U.S. into recession — not necessarily, but likely,” he said. “That’s not the most important thing we think about. We will manage through it. I would be much more concerned about the geopolitics of the world today.’

The dreaded R-word gets all the headlines, but the war in Ukraine, an aggressive Russia, tensions between the United States and China, and fractious relations with Saudi Arabia also pose risks.

Another way of thinking? Grading on a curve.

In the United States, the economy is growing, jobs are plentiful, inflation is showing signs of coming back down to Earth, and the stock market has recovered.

In Europe, gas prices are sinking, warm weather is delaying the need to dip into energy storage and the UK has a new prime minister and is no longer minutes from political and financial collapse.

In China, growth was better than expected despite zero-Covid policies.

We will all feel better than when things were at their worst, but we are far from where things were at their best.

The bottom line? Guessing the recession is tedious and imprecise. It is beyond our control. what is not Paying off high interest debt, living below our means and saving for retirement.

And it won’t last forever. After all, the average recession since 1950 lasted just 10 months, but the typical expansion lasted 59 months.