Recession obsession: Warnings grow but nobody knows for sure


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Don’t expect the US economic recovery in the third quarter to silence the chorus of recession calls.

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

The welcome GDP report comes amid near-daily recession warnings from bank CEOs, economists, think tanks and former finance ministers. They focus less on the growth deficit in the first half of the year and more on the uncertainty surplus for the future.

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

First, let’s look at how we got here:

The economy rebounded strongly from the Covid-19 pandemic but was weighed down by 40 years of high inflation and now higher interest rates as the Federal Reserve tries to rein in rising prices. A supply-demand imbalance and a shortage of workers caused US gross domestic product to contract in the first and second quarters, fulfilling a technical definition of a recession — and that’s why red flags were raised.

Second, the circumstances are different this time:

With consumers facing these challenges head-on, household finances are in much better shape today than they were at the start of the 2008-2009 financial crisis. The labor market remains robust, and unemployment is at a half-century low.

Third, we won’t know if we are or have been in a recession until it’s over:

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A recession could come. Or not. Or it’s here. Or we’ve already muddled through one. The official arbiter of this distinction is the National Bureau of Economic Research, whose economists use jobs, industrial production, retail sales, and tons of other data to determine when a recession began and ended.

The last recession, in early 2020 at the start of the pandemic, lasted just two months.

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

The US economy is a massive $21 trillion behemoth, the largest and most dynamic in the world. Economists have always, sometimes notoriously, disagreed about how to measure it.

And finally, perspective matters.

A recession is scary. People are losing jobs and businesses are closing. But inflation is also scary. And it will take a slowing economy – maybe even a recession – to control rising prices.

“So I’ve been trying to take people’s mind off this whole question of whether there was or was a recession in the first half because inflation is bad enough,” Mark Hamrick, senior economic analyst at Bankrate.com, told CNNs earlier Begin.

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

“What do recession and inflation have in common?” said Hamrick. “They take away people’s ability to buy the things they want and need. And in this case, the inflation problem has really affected more people than a larger number of unemployed would in this situation.”

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Again, no one knows for sure. But even the most staunch recession hawks believe that if a recession does occur, it will be mild.

Former Treasury Secretary Larry Summers told my colleague Wolf Blitzer that a recession was “almost inevitable” once inflation exceeded 5 percent, but noted: “I certainly don’t think it will be [2008] Financial crisis … or like the terrible things that happened after the pandemic started.” And stalled inflation is far more damaging than a brief recession.

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

“There’s a lot of bad things on the horizon that could push the US into recession – not necessarily, but could,” he said. “That’s not the most important thing we think about. We’ll get through this. I would be much more concerned about the geopolitics of the world today.”

The dreaded R-word makes all the headlines, but the war in Ukraine, an aggressive Russia, tensions between the US and China and a broken relationship with Saudi Arabia also harbor risks.

Another way to think about it? Grading on a curve.

In the United States, the economy is growing, jobs are plentiful, inflation is showing signs of returning to earth, and stock markets have rallied.

In Europe, gas prices are falling, warm weather is delaying the need to dip into energy supplies and Britain has a new prime minister and is no longer adrift of political and financial collapse.

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

We may all feel better than we did when things were at their toughest, but we’re a long way from where things were at their best.

bottom line? Recession estimates are tedious and inaccurate. It’s totally out of our control. what is not Pay off high-interest debt, live below our means, and save for retirement.

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

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