Washington: The warnings have been pouring in for over a year: a recession is about to strike the United States. If not in this quarter, then by the next quarter. or subsequent quarter. Or maybe next year.
So is the recession still in sight?
The latest indications suggest probably not. Despite very high borrowing costs, consumers continue to spend, and employers keep hiring, thanks to the Federal Reserve’s aggressive streak of raising interest rates. Gas prices have fallen, and grocery prices have come down, giving Americans more spending power.
The economy continues to manage to grow. And there is even a belief among some economists that the United States may actually achieve an elusive “soft landing,” in which growth slows but households and businesses spend enough to avoid a full recession.
“The american economy “There are indeed signs of resilience,” said Gregory Daco, chief economist at tax and consulting firm EY. “This is leading many to rightly question whether the long-predicted recession is really inevitable or whether a soft landing of the economy is possible”.
Analysts point to two trends that could help prevent an economic contraction. Some say the economy is experiencing a “rolling recession”, in which only certain industries are shrinking while the overall economy remains above water.
Others believe the US is experiencing what they call a “wealth concession”: the major cuts in jobs, they say, are concentrated in high-paying industries such as technology and finance, which include professional workers. There is a huge number of people who usually have financial support to face layoffs. As a result, job cuts in those sectors are less likely to overwhelm the overall economy.
Still, dangers loom: The Fed will almost certainly raise interest rates at least once more and keep them high for months, continuing to impose heavy borrowing costs on consumers and businesses. That’s why some economists warn that a full recession may yet come.
“The Fed will keep pushing until it fixes the inflation issue,” said BNP Paribas economist Yelena Shulyatyeva.
On Wednesday, Fed Chairman Jerome Powell reinforced that message, saying that the central bank’s key rate has not been controlling the economy for “very long” and that “the main thing is that policy has not been restrictive enough for long”. Is.”
Powell spoke at a global conference in Sintra, Portugal, along with three other central bank leaders whose economies are also grappling with persistently high inflation. The Bank of England raised its key rate by a substantial half-point last week, leaving Britain vulnerable to recession, while Europe’s economy has stagnated in the past six months.
Here’s how it all might play out in the United States:
it’s a rolling recession
When different sectors of the economy begin to contract, some in decline while others continue to expand, it is sometimes called a “rolling recession”. The economy as a whole manages to avoid a full recession.
The housing industry was one of the first to suffer the downturn after the Fed began rapidly raising interest rates 15 months ago. As mortgage rates nearly doubled, home sales plummeted. They are now 20% less than they were a year ago. Manufacturing soon began. And although its performance hasn’t been as bad as housing, factory output is down 0.3% from a year ago.
And this spring, the technology industry also faced a downturn. After the pandemic, Americans were spending less time online and instead began shopping at physical stores and going out to restaurants more often. That trend has forced sharp job cuts among tech companies such as Facebook parent company Meta, video conferencing provider Zoom and Google.
Also, consumers increased their spending on travel and entertainment venues, boosting the economy’s vast services sector and offsetting hardships in other sectors. Economists say they expect such spending to slow later this year as the savings many households built up during the pandemic continue to dwindle.
Nevertheless, by then the housing system will have improved enough to be able to move forward and drive economic growth. There are already signs that the industry is starting to recover: New home sales rose 12% from April to May, despite high mortgage rates and home prices well above pre-pandemic levels.
and other areas should continue to expand, so as to provide a basis for overall development. Krishna Guha, an analyst at Evercore ISI, says some sectors of the economy — from education to government to health care — aren’t as sensitive to higher interest rates, which is why they’re still hiring and maybe Will keep doing this.
“If the US economy gets into a soft spot, we think these regional slowdowns will be a big part of the story,” Guha said.
it’s a ‘prosperity’
Affluent Americans really aren’t hurting, especially since the stock market has rallied this year. Yet it is also true that the bulk of the high-profile job losses that began last year are concentrated in high-paying occupations. This pattern is different from what typically occurs during recessions: low-wage jobs in sectors such as restaurants and retail are usually the first to be lost and often in depressingly large numbers.
That’s because in most recessions, restaurants, hotels and retailers lay off large numbers of workers as Americans hold back on spending. Since fewer people buy homes, many construction workers are put out of work. Sales of high-priced manufactured goods such as cars and appliances decline, leading to job losses in factories.
This time it has not happened yet. Restaurants, bars and hotels are still hiring – in fact, they’ve been a major driver of job gains. And to the surprise of labor market experts, construction companies are still adding workers despite high lending rates, which often discourage residential and commercial building.
Instead, the layoffs are primarily hitting white-collar and professional businesses. Uber Technologies said last week that it would lay off 200 of its recruiters. Earlier this month, GrubHub announced 400 layoffs at the delivery company’s corporate jobs. Financial and media companies are also struggling, with Citibank announcing it will lay off 1,600 employees in the April-June quarter. On Tuesday, Ford Motor Co said it was laying off several hundred engineers, after cutting 3,000 white-collar jobs last year.
Economists say many of the affected workers are well-educated and are likely to find new jobs relatively quickly, which should help keep unemployment low despite the layoffs. Right now, for example, employers in the federal government, as well as hotels, retail and even the railroad industry, are looking to hire people who have been laid off from tech giants.
Tom Barkin, president of the Federal Reserve Bank of Richmond, says affluent workers usually have savings that they can tap into after losing their jobs, allowing them to continue spending and fueling the economy. For this reason, Barkin suggested, white-collar job losses do not weaken consumer spending as much as losses for blue-collar workers.
Barkin said in an interview with The Washington Post, “It’s easy to imagine that this could be a different kind of softness in the labor market … which has a different kind of effect than your typical weakness on things like demand and the unemployment rate.” has an effect.” Associated Press last month.
or maybe no recession
The most optimistic economists say their hope is growing that a recession can be avoided, even if the Fed keeps interest rates high for months to come.
He says that many of the recent economic figures have come out better than expected. Most notably, hiring remains surprisingly resilient, with employers adding a robust average of nearly 300,000 jobs over the past six months and the unemployment rate at 3.7%, still near a half-century low.
Manufacturing is also defying gloomy expectations. On Tuesday, the government reported that companies increased orders for industrial machinery, railcars, computers and other long-durable goods last month.
Many analysts are encouraged that some threats to the economy have not turned out to be as damaging as feared – or have not appeared at all. For example, the fight in Congress over the government’s borrowing limit, which could cause default on Treasury securities, was resolved without much disruption to financial markets or a clear effect on the economy.
And so far, the banking turmoil that followed last spring’s collapse of Silicon Valley Bank has been largely contained and the economy doesn’t seem to be fizzling out.
Jan Hatzius, chief economist at Goldman Sachs, said this month that the waning of such threats has caused him to cut his probability of a recession within the next 12 months from 35% to just 25%.
Other economists say the economy does not face dangerous imbalances or events of the type that have led to some recent recessions, such as the stock market bubble in 2001 or the housing bubble in 2008.
“The recession risk is fast diminishing,” said Neil Dutta, economist at Renaissance Macro. Whether we’re having a recession or a “wealthy recession,” he said, “if you have to call it by different names, it’s not a recession.”
So is the recession still in sight?
The latest indications suggest probably not. Despite very high borrowing costs, consumers continue to spend, and employers keep hiring, thanks to the Federal Reserve’s aggressive streak of raising interest rates. Gas prices have fallen, and grocery prices have come down, giving Americans more spending power.
The economy continues to manage to grow. And there is even a belief among some economists that the United States may actually achieve an elusive “soft landing,” in which growth slows but households and businesses spend enough to avoid a full recession.
“The american economy “There are indeed signs of resilience,” said Gregory Daco, chief economist at tax and consulting firm EY. “This is leading many to rightly question whether the long-predicted recession is really inevitable or whether a soft landing of the economy is possible”.
Analysts point to two trends that could help prevent an economic contraction. Some say the economy is experiencing a “rolling recession”, in which only certain industries are shrinking while the overall economy remains above water.
Others believe the US is experiencing what they call a “wealth concession”: the major cuts in jobs, they say, are concentrated in high-paying industries such as technology and finance, which include professional workers. There is a huge number of people who usually have financial support to face layoffs. As a result, job cuts in those sectors are less likely to overwhelm the overall economy.
Still, dangers loom: The Fed will almost certainly raise interest rates at least once more and keep them high for months, continuing to impose heavy borrowing costs on consumers and businesses. That’s why some economists warn that a full recession may yet come.
“The Fed will keep pushing until it fixes the inflation issue,” said BNP Paribas economist Yelena Shulyatyeva.
On Wednesday, Fed Chairman Jerome Powell reinforced that message, saying that the central bank’s key rate has not been controlling the economy for “very long” and that “the main thing is that policy has not been restrictive enough for long”. Is.”
Powell spoke at a global conference in Sintra, Portugal, along with three other central bank leaders whose economies are also grappling with persistently high inflation. The Bank of England raised its key rate by a substantial half-point last week, leaving Britain vulnerable to recession, while Europe’s economy has stagnated in the past six months.
Here’s how it all might play out in the United States:
it’s a rolling recession
When different sectors of the economy begin to contract, some in decline while others continue to expand, it is sometimes called a “rolling recession”. The economy as a whole manages to avoid a full recession.
The housing industry was one of the first to suffer the downturn after the Fed began rapidly raising interest rates 15 months ago. As mortgage rates nearly doubled, home sales plummeted. They are now 20% less than they were a year ago. Manufacturing soon began. And although its performance hasn’t been as bad as housing, factory output is down 0.3% from a year ago.
And this spring, the technology industry also faced a downturn. After the pandemic, Americans were spending less time online and instead began shopping at physical stores and going out to restaurants more often. That trend has forced sharp job cuts among tech companies such as Facebook parent company Meta, video conferencing provider Zoom and Google.
Also, consumers increased their spending on travel and entertainment venues, boosting the economy’s vast services sector and offsetting hardships in other sectors. Economists say they expect such spending to slow later this year as the savings many households built up during the pandemic continue to dwindle.
Nevertheless, by then the housing system will have improved enough to be able to move forward and drive economic growth. There are already signs that the industry is starting to recover: New home sales rose 12% from April to May, despite high mortgage rates and home prices well above pre-pandemic levels.
and other areas should continue to expand, so as to provide a basis for overall development. Krishna Guha, an analyst at Evercore ISI, says some sectors of the economy — from education to government to health care — aren’t as sensitive to higher interest rates, which is why they’re still hiring and maybe Will keep doing this.
“If the US economy gets into a soft spot, we think these regional slowdowns will be a big part of the story,” Guha said.
it’s a ‘prosperity’
Affluent Americans really aren’t hurting, especially since the stock market has rallied this year. Yet it is also true that the bulk of the high-profile job losses that began last year are concentrated in high-paying occupations. This pattern is different from what typically occurs during recessions: low-wage jobs in sectors such as restaurants and retail are usually the first to be lost and often in depressingly large numbers.
That’s because in most recessions, restaurants, hotels and retailers lay off large numbers of workers as Americans hold back on spending. Since fewer people buy homes, many construction workers are put out of work. Sales of high-priced manufactured goods such as cars and appliances decline, leading to job losses in factories.
This time it has not happened yet. Restaurants, bars and hotels are still hiring – in fact, they’ve been a major driver of job gains. And to the surprise of labor market experts, construction companies are still adding workers despite high lending rates, which often discourage residential and commercial building.
Instead, the layoffs are primarily hitting white-collar and professional businesses. Uber Technologies said last week that it would lay off 200 of its recruiters. Earlier this month, GrubHub announced 400 layoffs at the delivery company’s corporate jobs. Financial and media companies are also struggling, with Citibank announcing it will lay off 1,600 employees in the April-June quarter. On Tuesday, Ford Motor Co said it was laying off several hundred engineers, after cutting 3,000 white-collar jobs last year.
Economists say many of the affected workers are well-educated and are likely to find new jobs relatively quickly, which should help keep unemployment low despite the layoffs. Right now, for example, employers in the federal government, as well as hotels, retail and even the railroad industry, are looking to hire people who have been laid off from tech giants.
Tom Barkin, president of the Federal Reserve Bank of Richmond, says affluent workers usually have savings that they can tap into after losing their jobs, allowing them to continue spending and fueling the economy. For this reason, Barkin suggested, white-collar job losses do not weaken consumer spending as much as losses for blue-collar workers.
Barkin said in an interview with The Washington Post, “It’s easy to imagine that this could be a different kind of softness in the labor market … which has a different kind of effect than your typical weakness on things like demand and the unemployment rate.” has an effect.” Associated Press last month.
or maybe no recession
The most optimistic economists say their hope is growing that a recession can be avoided, even if the Fed keeps interest rates high for months to come.
He says that many of the recent economic figures have come out better than expected. Most notably, hiring remains surprisingly resilient, with employers adding a robust average of nearly 300,000 jobs over the past six months and the unemployment rate at 3.7%, still near a half-century low.
Manufacturing is also defying gloomy expectations. On Tuesday, the government reported that companies increased orders for industrial machinery, railcars, computers and other long-durable goods last month.
Many analysts are encouraged that some threats to the economy have not turned out to be as damaging as feared – or have not appeared at all. For example, the fight in Congress over the government’s borrowing limit, which could cause default on Treasury securities, was resolved without much disruption to financial markets or a clear effect on the economy.
And so far, the banking turmoil that followed last spring’s collapse of Silicon Valley Bank has been largely contained and the economy doesn’t seem to be fizzling out.
Jan Hatzius, chief economist at Goldman Sachs, said this month that the waning of such threats has caused him to cut his probability of a recession within the next 12 months from 35% to just 25%.
Other economists say the economy does not face dangerous imbalances or events of the type that have led to some recent recessions, such as the stock market bubble in 2001 or the housing bubble in 2008.
“The recession risk is fast diminishing,” said Neil Dutta, economist at Renaissance Macro. Whether we’re having a recession or a “wealthy recession,” he said, “if you have to call it by different names, it’s not a recession.”