The Other Side of the Coin: Recession Fears Might Be Overblown

The cries of “recession” emanate from every corner and have created a cloud of doom over financial markets. Turn on CNBC or FOX business network, and you will hear one guest after another speaking of the horrors of the coming recession and even the possibility of a depression – invoking the specter of 1929. There have been 19 notable “recessions” in U.S. history, spanning from 1893 to 2008. Will 2022 or 2023 be number 20, or have the “experts” misread the financial tea leaves? Will the predictions of a major recession end up being a minor event or even a non-event?

What is a recession? The popular narrative that the economy is in a recession after two consecutive quarters of negative gross domestic product (GDP) is not really accurate. The National Bureau of Economic Research (NBER) states that a recession is defined as a “significant decline in activity that is spread across the economy and lasts more than a few months.” For example, the “dot com bust” in 2000 was declared a recession, and we did not have two consecutive quarters of negative GDP.

A recession is usually accompanied by a lack of demand and job loss, neither of which is happening. The consumer is still spending despite the recent June inflation report showing a 9.1% year-over-year increase. A Bank of America Institute report reveals that credit and debit card spending was up 11% during that same year-over-year period. This increase follows a 9% increase in April and a 13% increase in May. Additionally, Bank of American data confirms that consumers are not only spending more; they are saving more than they were before the covid pandemic began.

Credit/Debit spending is healthy. Consumers still spending, despite inflation.

 

Savings remains much higher than pre-pandemic levels.

 

Job loss that historically accompanies recession is not occurring. The U.S. Bureau of Labor Statistics showed 372,000 additional jobs in June of this year, which beat estimates by 104,000. Unemployment remained at 3.6% for the fourth month in a row. Jobs in the private sector have regained their pre-pandemic levels, and no industry lost jobs in June.

Unemployment rate

 

We hear that the Federal Reserve will likely raise interest rates by 1% to combat rising prices, but many commodity prices are falling now, which might inform a more dovish FED stance than people expect. Recessions generally have falling demand, which often reduces inflation, but we don’t have that. We have strong demand and falling inflation as supply chains continue to improve. The S&P GSCI commodities index has fallen back to February levels before Russia invaded Ukraine, after retracing 20% from highs seen in March and June. Copper has tumbled 30% from March highs, and wheat is down about 40% from recent highs. Oil has fallen from a high of nearly $125 per barrel in March to its current $98.

Falling oil prices

 

Tom Lee, a Managing Partner and the Head of Research at Fundstrat Global Advisors, stated what others are beginning to realize when overheated recession rhetoric is tuned out. He asks the question, “Can inflation accelerate if inflation expectations and inflation leading indicators are tanking?” Lee also noted, “If a ‘disinflation’ trend is underway now, this argues inflation was indeed ‘transitory.”

“The relative strength of these two indices (mega-cap tech stocks and Chinese stocks), in our view, are counter-arguments to a ‘ recession starting’ in the U.S. And moreover, we think this coupled with improving inflation risks, support better equity returns in the second half of 2022,” Lee concluded.

Recession is not here yet and may never arrive. Much of the fear surrounding a recession occurring now or even in 2023 requires things to happen that clearly aren’t.

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 RWR original article syndication source.

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6 Comments

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  1. Wow, really? Have you seen the deficit amount?
    And fuel fuels everything. We have curtailed our own production.
    People are having a spending spree summer. Wait until the bill comes due.
    Killing our economy has been on purpose.

  2. Nearly every notable recession we’ve ever had has had both greater unemployment and lack of demand. One thing that tends to remain stable is salaries, oddly enough. As of right now, the consumer is spending, while savings are strong, while commodities are falling, and business spending is relatively stable. These are not hallmarks of a recession. Of course all this could change depending FED hawkishness. Seems they’ve backed off the 1% hike for the time being. I understand the importance of breaking the back of inflation for the midterms, which theoretically kicks the can down the road until 2023. However, “transistory” inflation, from covid, supply chains, and Ukraine, which was round mocked as inflation continued to rise, might not have been entirely incorrect. We see commodity prices collapsing from highs as supply chains improve. We will see what happens.

  3. Max Dugan, thank you so much for the thoughtful reply and specifically rebutting the points and data in the article. And by the way, it’s “Atta boy” not “Atsa boy”. Put on some “jammmies” and perhaps your spelling will improve.

  4. Interesting read, thank you.

    Flipping the coin:

    Americans cannot rely on past historical trends in the present day, highly manipulated economic conditions.
    Just the government stimulus and FED monies infusion alone has created huge distortions that is making this economic slowdown much different than we have experienced in the last century. Now we even change the definition of a recession.
    Recession: “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters”.

    It’s a common misconception that recessions are defined by high unemployment. Job losses lag the fall in GDP and rising unemployment is often a consequence of prolonged recessions.

    Jobs:
    There has been no significant job growth since lockdowns rather a replacement of jobs which existed , were halted, and now return albeit with lower wages related to inflation costs built in. Unemployment numbers in a rigged system presently do not show an accurate assessment of economic strength. One must focus on the Labor Participation force numbers The LPR is where it sat 40 years ago and falling, In other words, the official unemployment rate measures only those who are looking for work right now. It does not count those who are not looking for work (or who have figured out how to pay the bills by working unofficially.) We are also experiencing more part time hires v. full time as we did during the anemic economy of Obama. The latest job loss numbers are ominous with 244k Americans filing for unemployment benefits for the first time last week. That is the highest since November 2021. https://www.zerohedge.com/markets/initial-jobless-claims-soars-highest-nov-2021

    Inflation is rising not falling.
    https://theconservativetreehouse.com/blog/2022/07/13/june-inflation-jumps-1-3-percent-annual-inflation-rate-increases-to-9-1-percent/

    Consumer reliance on credit is up, but US personal savings rate is near a five-year low as pandemic fiscal stimulus savings run dry.
    https://www.zerohedge.com/markets/recession-imminent-spending-fueled-debt-savings-run-dry
    Lay off are starting and will increase :
    https://www.zerohedge.com/technology/apple-shares-tumble-after-reports-hiring-spending-slowdown
    https://www.zerohedge.com/personal-finance/homebuilder-confidence-collapses-july

    Real GDP (gross domestic product) in the United States declined at an annual rate of 1.6% in the first quarter.
    The Atlanta Fed Nowcast shows a 1.5% contraction in the second quarter. But the underlying figures are scarier. According to the Atlanta Fed, “the GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.5% on July 15, down from -1.2% on July 8”. That is an enormous negative change, -0.3% of GDP, in one week.The Atlanta Fed Nowcast shows a 1.5% contraction in the second quarter. But the underlying figures are scarier. According to the Atlanta Fed, “the GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.5% on July 15, down from -1.2% on July 8”. That is an enormous negative change, -0.3% of GDP, in one week.

    Negative real wage growth, weakening consumption, decade-low consumer confidence and collapsing investment means we are already in recession and the massive stimulus plans have created nothing but debt.
    The biggest concern regarding inflation is that core inflation -excluding the energy and food component- continues to advance to figures not seen since the early nineties.
    Almost every data that points to the private sector activity is in contraction. June industrial production fell 0.2% in June after stalling in May. Capacity utilization fell to 80% after being revised down from 80.8% to 80.3% in May according to the Federal Reserve.

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Written by Liam Salvatore

Liam Salvatore writes at the Right Wire Report. Contact him at blueday@rightwirereport.com.

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