What If We Forgot to Have the Recession?

Ain’t nobody got time for that!

Experts have been warning us about a recession for over a year, but maybe we’re too busy to notice. As  Kimberly "Sweet Brown" Wilkins of viral YouTube fame would say: “Ain’t nobody got time for that.”

The unemployment rate of about 3.7% was at or near a 50-year low. Not only is the job market  healthy, but wages are growing, the quit rate remains at historically high levels, Americans are spending and GDP has recovered strongly from a slow first half of 2022. Business is also good: Companies are largely beating revenue expectations and reporting positive earnings results. And sky-high inflation and gas prices are coming down big time.

 

We’ll see if this week’s CPI numbers change the mood, but chances are we’re moving in a cautiously optimistic direction.

 

I know we have an inverted yield curve (again), which many believe is confirmation that a recession is imminent. Yes, it’s true that an inverted yield curve has preceded every U.S. recession since World War II, but about one-third of the time we have an inverted yield curve, a recession DOES NOT follow, as was the case in 2020.

 

The old saying goes: “Economists have predicted nine of the last five recessions” and maybe all this angst and paranoia about the looming recession is just another “miss.”

"The reason we're not in a recession is that the labor market still is performing very well in the US economy," Ken Kim, a senior economist at KPMG, told Insider. "So, people are still finding jobs and getting a paycheck and spending it on goods and services."

Real personal income excluding payments from the government has been increasing, with four straight months of gains after falling earlier this year. And retail sales during the 2022 Holidays were up a healthy 7.6% despite substantially higher prices.

"Gains in employment, gains in industrial production, gains in income levels, strong nominal sales figures — none of that stuff sounds particularly recessionary to me," observed Jack Manley, a global market strategist at JPMorgan Asset Management, in a recent Insider interview.

Not your grandfather’s recession

According to the general definition—two consecutive quarters of negative real gross domestic product (GDP) growth —the U.S. entered a very mild recession in the summer of 2022 after recording minus 1.6% GDP growth in Q1 of last year and minus 0.6% in Q2. If it was a technical recession it was arguably short-lived as GDP rebounded +3.2% in Q3 and an estimated +4.1 in Q4.

But we don’t use that recession benchmark anymore. Now it’s the National Bureau of Economic Research (NBER), whose definition of recession—means a significant decline in economic activity across an entire economy -- and that lasts more than a few months. So by this gauge as well, were not in a recession in the summer of 2022. Nor are we now.

Reasons for optimism

Yields on U.S. government bonds, which largely reflect investors’ expectations for short-term interest rates set by the Fed, reached their peak last October. Back then, data had yet to show a drop in core goods prices, even as it was showing an acceleration in services inflation. Yields have since come well off their highs, with PCE core goods inflation over the past three recorded months running at an annualized rate of minus 1.9%. Also, last Friday’s strong jobs report included a double dose of good news for investors. While jobs were plentiful, average hourly earnings rose less than expected in December, and also included significant downward revisions to the gains from previous months. That means most people are still working, but wage gains are less likely to trigger crippling inflation.

Conclusion

Bottom line: If you think things are still good and/or trending upward, don’t be afraid to invest, spend, hire and expand. Don’t let the Fed dissuade you from growing your business, pursuing your goals and enjoying life to the fullest. But if you’re convinced the sky is falling – or about to fall--go ahead and hunker down, lay off staff, hoard cash and wait for the recession storm clouds to pass. Just don’t ruin it for the rest of us.

Six months from now, you may enjoy the schadenfreude of telling optimists: “I told you so.” But chances are you’ll be in our rearview mirror, wishing you had taken action when things were still cheap way back in early 2023.

What’s your take? I’d love to hear from you. 

#recession, #aintnobodygottimeforthat, #economy, #yieldcurveinversion