Analysis: American recession fears collide with reality
And in some ways that makes sense: Since 1948, every period of back-to-back quarters of negative growth 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 in the past 10 days suggest those recession calls are, at a minimum, premature.
Consider the following developments:
- The economy added more than half a million jobs in July alone.
- The unemployment rate dropped to 3.5%, tied for the lowest level since 1969.
- Inflation chilled out (relatively speaking) in July for both the consumers and producers.
- Gas prices tumbled below $4 a gallon for the first time since March.
- Consumer sentiment has bounced off record lows.
- The stock market notched its longest weekly winning streak since November.
Mark Zandi, chief economist at Moody’s Analytics, has only grown more confident that the US economic recovery is intact.
“This is not a recession. It’s not even in the same universe as a recession,” Zandi told CNN. “It’s just patently wrong to say it is.”
Of course, none of this means the economy is healthy. It isn’t. Inflation remains way too high.
And none of this means the economy is out of the woods. It isn’t.
Job market is still hot
The biggest issue in arguing that a recession has already begun is the fact that hiring ramped up — dramatically — in July. The United States added a staggering 528,000 jobs last month, returning payrolls to pre-Covid levels.
An economy that’s in recession doesn’t add half a million jobs in a single month.
“I don’t think anything in the data about where we are right 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 phone interview last week.
If anything, the job market is too hot. And that is a problem for the months ahead because it allows the Federal Reserve to aggressively raise interest rates without resulting in widespread damage to the labor market in its bid to slow the economy down.
The risk is that the Fed ends up slamming the brakes so hard that it slows the economy right into a recession.
Inflation…
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