Economists are divided on the risk of a U.S. recession

Is the US economy showing no signs of recession or is it inevitably heading into a recession? Is it actually already in one?

More than a month after the country experienced two successive quarters of economic contractionit always depends on who you ask.

Steve Hanke, professor of applied economics at Johns Hopkins University, believes the United States is heading for a “whopper” of a recession in 2023. While Stephen Roach of Yale University accepted it will take a “miracle” for the US to avoid a recession next year – but it won’t be as bad as the downturn of the early 1980s.

Yet Nobel Prize-winning economist Richard Thaler said he sees “nothing resembling a recession” in the US right now, pointing to recent low unemployment rate, high job offersand the fact that the economy is growing – but not as fast as the prices.

And market players are also divided.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, said a recession is more likely than a soft landing for the US economy right now, although it could be a rotational recession that hits the economy in the pockets.

While Steen Jakobsen, chief investment officer at Saxo Bank, made it clear in a recent interview with CNBC: the US is not heading into a recession in nominal terms, even if it is in real terms.

A recession is more likely than a soft landing, says Charles Schwab's Liz Ann Sonders

Recent surveys reflect the split. A Reuters poll of economists in late August put the likelihood of a US recession within a year at 45% (with most saying a recession would be short and shallow), and a Bloomberg survey put the likelihood of a slowdown to 47.5%.

Mixed signals

So why this discrepancy? It depends on what you are focusing on: gross domestic product (GDP) or the labor market.

US GDP decline of 0.9% over one year in the second quarter and 1.6% in the first, meeting the traditional definition of a recession. The slowdown in growth was driven by a number of factors, including falling inventories, investment and government spending. Personal income and inflation-adjusted savings rates also declined.

However, in the United States, a recession is officially declared by the National Bureau of Economic Research, which is unlikely to comment on the period in question for some time.

What makes this time different from all other six-month periods of negative GDP since 1947 has been the continued strength of the job market.

The closely watched nonfarm payrolls data for August, released on Friday, show nonfarm payrolls rose 315,000 — a solid increase, but the smallest monthly gain since April 2021.

It added to other recent releases which showed a slowdown in the growth of the private wage billbut one much higher rate new job offers than expected.

Are we in a recession or what?

William Foster, senior credit manager at Moody’s, said jobs to GDP continued to be the big debate among economic commentators, amid the US Federal Reserve rapidly shifting from accommodative monetary policy – where it adds to the money supply to stimulate the economy — to a restrictive economy, involving interest rate hikes in order to fight inflation, which reached 8.5% in July.

“We are coming out of an extraordinary time that has never been seen before in history,” Foster told CNBC by phone.

When making its decision, the National Bureau of Economic Research looks at real household income, real spending, industrial production, the labor market and unemployment — and those variables don’t give clear signals of a recession, said Foster.

“The job market is still struggling to hire, especially in the service sector,” he said.

Larger indicators

Foster also noted that households were still spending relatively heavily, albeit at a slower rate of growth, allowed by the period of accumulation of household savings during the pandemic.

However, at the recent Ambrosetti Forum in Italy, economist Joseph Stiglitz told CNBC he worries about the decline in real wages that workers are experiencing despite the tight labor market.

In addition to disagreeing on which indicators to focus on, commentators are also divided on what certain sectors are showing.

Investor Peter Boockvar said the latest housing and manufacturing data show why the United States will not be able to avoid a recession, with the housing market index from the National Association of Home Builders/Wells Fargo fall into negative territory in August.

But according to Saxo Bank’s Jakobsen: “We still have double-digit increases in the rental market. It’s not going to create a recession.”

“People just have enough money on the balance sheet to buy an apartment and rent it out and earn 20-30%. [a recession] won’t happen.”

Volatile Times

There are also broader reasons for the current level of debate, said Alexander Nutzenadel, professor of social and economic history at Humboldt University in Berlin.

“We live in a time of multiple shocks — from Covid 19 to energy prices to political de-globalization — that make forecasting extremely difficult,” he told CNBC via email.

This means that the economic performance of a highly developed country like the United States is highly dependent on external factors.

The United States needs a

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