A growing number of cybercriminals predict that the United States is heading for a recession next year. Studies have shown that some Americans believe we are already there. But no matter how bad the information and the sad feelings among the American people, it may be a long time before we really know when and when the country has fallen into a slump.
“By the time the economic downturn is officially announced, we’re either well into it or almost gone,” said Josh Bivens, director of research at Left Economic. Policy Institute.
Crisis in the US has been officially identified by a committee of eight economists to the National Bureau of Economic Research (NBER). There’s no hard time for skin planning, but it usually takes a year before a committee announcement is made. (There are common rules of thumb, such as two -quarters of negative local goods – but they aren’t hard and fast rules, and even those ratios seem backward.)
Fears of a financial crisis have risen as the Federal Reserve raises interest rates to meet consumer demand and threatens inflation by forty percent. year. Prices have risen more than 8 percent from last year, according to some trends, making it more difficult for Americans to buy food in stores and gas at the pump.
Most economists agree that the country is not in a coma, although there are some worrying signs.
In many ways, the economy appears to be very resilient. The labor market is adding hundreds of thousands of jobs each month and job opportunities have fallen slightly, but at 11.3 million, it remains on top of the disease. Wages continue to rise in some areas, and new unemployment claims are low. The unemployment rate stands at 3.6 percent, slightly above its pre-disease level, which was at its 50-year low.
“It’s very low,” Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, said of unemployment. “It has to be a lot more for me to start worrying a ton about the labor market.”
Fed officials hope they can achieve a “weak ground” – easing demand and lowering inflation without sending the labor market into turmoil. But it can be a difficult balancing act, since slowing demand often comes with rising unemployment due to reduced consumer spending and companies reducing production and manufacturing. employed, says Tara Sinclair, a professor of economics at George Washington University.
To add to the challenge, the Fed doesn’t have a great record of pulling on weak ground when inflation rises as it currently does, and public sentiment continues to sink. buy at low prices. If consumers are unhappy with the economy and think they may lose their jobs, they can pull back on spending, which hurts the economy.
So how do we know if a tire has fallen before NBER makes an official announcement?
The official decline of two consecutive quarters of domestic production means that the economy is falling rather than growing. The economy fell in the first quarter of 2022 after strong growth in the last quarter of 2021.
But even if another GDP report this month shows a decline in the second quarter, the rest of the economy is unlikely to read a decline due to the strength of the labor market. And while many of the cuts shown by the NBER fit this trend, some are not: in 2001, for example, GDP fell in the first quarter, growing in the next quarter. , and decreased again in the third quarter.
Traders say there are a number of relevant signs that could indicate a rash. Consumer spending and sentiment are all important factors to monitor, especially when Americans start buying a few unwanted products, such as new seats or cars. Some of these estimates indicate that the economy is beginning to improve: Consumer spending rose by 0.2 percent in May, respectively. weakest month this year. Consumer confidence has shown little signs of weakening, and a recent survey by the Advisory Board found that consumer confidence has fallen to its lowest level since February 2021.
The shortfall is also marked by an increase in the workforce and a sharp rise in the unemployment rate. Insurance claims for unemployment are a good measure of time, investors say, since the federal government releases new data each week. If more people are applying for unemployment benefits, it could be evidence that the labor market is starting to slow down. In this case, things don’t look too bad: The labor market is still adding jobs, and unemployment isn’t increasing.
The magnitude of the economy refers to Sahm’s law, which measures whether the level of unemployment has increased. The law provides for a deficit if the three -month average unemployment rate is increased by half a percent. its lowest in the last 12 months. The country’s current unemployment rate is 3.6 percent lower than last year, so Sahm’s legislation will be launched when it reaches three. month average at 4.1 percent. The rule was created by Claudia Sahm, a former Fed Economist, who said the United States is not in a hurry right now on this scale.
We can also learn a lot by looking at the Americans who have been the most affected in history. Black and Hispanic entrepreneurs say they will bear the brunt first and are more at risk of losing their jobs. Smaller employees, people with low levels of education, and employees with criminal records will also be severely affected because employers can be more selective, excluding older employees. on the shore.
“Right now, we are looking for workers. They’re hiring people they usually pass by, ”Sahm said.
Businesses that are sensitive to rising interest rates – such as homes and factories – can also see a number of risks before they take risks. in other areas.
And it will not just heal. With fewer job opportunities, it will be more difficult for Americans to change jobs when they are unhappy with their jobs, an opportunity they enjoyed during the disease because it remains. the need for workers. It may also be difficult to get a raise if employers reduce costs, part -time workers may struggle to work more hours, and union efforts may lose momentum.
“Families can’t afford what they need to feed their children or maintain their homes,” Sahm said. “Small businesses go down because there are no customers coming in. It’s spreading and it’s reaching a lot of people. ”
When are recessions officially called?
If many Americans have lost their jobs and sources of income, it must be argued that it does not matter whether the collapse is a “formal one.” But it is useful to understand how the United States came to that conclusion.
The NBER committee – called the Business Cycle Dating Committee – looks at a broad set of priorities. To see also : Why the global inflation problem is bigger than US politics. The group officially describes the fall as a “massive fall in economic activity that is spreading across the economy and lasting more than a few months.”
Because there are problems with reporting federal records, the committee does not usually run to announce the onset of a fall. It also takes time to evaluate numbers, which are often referred to as revisions, making it more challenging to calculate skins in real time.
“Their goal isn’t to be fast or be the first to show a skin. That’s the job of everyone else,” said Jeffrey Frankel, who was a former committee member and a professor of economics at Harvard Kennedy School. “The job of the NBER Business Cycle Dating Committee is to present it in a highly authoritative way that is unlikely to improve later.”
The committee announced the onset of the economic downturn as soon as possible, about four months after it began in February 2020 (rising unemployment and the economic downturn that made disease and abnormalities). During the Great Recession in 2008, the committee spent about a year signaling the onset of a recession.
To make its decision, the committee looks at indicators such as employment status, GDP, personal income, retail sales, and manufacturing output. Many of these signs look strong now, Frankel said.
Some investors have also predicted that if the country hits a downturn next year, it may be relatively calm or short -lived, possibly delaying an announcement.
“When you’re tired, it’s really hard to see what’s going on,” Frankel said.
There are troubling signs, but a recession isn’t inevitable
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Mark Zandi, the chief economist at Moody’s Analytics, said he predicts about a 40 percent chance of a fall next year. There are reasons for optimism, he said, given the increase in employment and the fact that family finances remain strong because Americans accumulated savings during the disease. Consumer confidence in the economy has weakened recently, “but it shows no sign of falling off the rock,” Zandi said.
Karen Dynan, a professor of economics at Harvard University and a former chief economist at the Department of Finance, puts the risk of a collapse in the coming months at a high levels, but said a fall is likely to be short -lived as many economic conditions remain. strong.
“If we have the skin, I don’t think we’re going to go to number two unemployment rate,” Dynan said. “I think it looks shallow and not very long.”
Federal Reserve Chairman Jerome Powell has made it clear that the central bank is committed to reducing the cost of the economy, even if it means risking the current collapse to prevent a much worse situation later. Minutes released Wednesday from the Fed’s last meeting revealed central bank officials ’concerns about economic growth in the economy, prompting their choices to increase inflation. rising prices.
While some economists believe the Fed will quickly step in and pull back its increases if the labor market falls, others are unsure.
“I’m sure they’ll fully jump to stimulate the economy at any sign of a collapse? I don’t believe much in that, ”said Bivens, the EPI economist. “I think it should, but I’m not so sure.”
