The United States is facing rising recession fears as the Federal Reserve, the country’s central bank, remains upbeat in the fight against high inflation and officials are increasingly talking about the need to impose some economic pain to bring price pressures under control, several economists told Al Jazeera.
“There is still a good amount of strength in the labor market and that will allow the Fed to remain aggressive in the fight against inflation,” Edward Moya, a senior market analyst at OANDA, a New York-based foreign exchange firm, told Al Jazeera.
“Price pressures are not going away. And looking at energy prices, the downward movement that we’ve been pricing in appears to be over and it looks like oil and gas prices will be on the way back up,” he said .
The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, decided last week to cut oil production by 2 million barrels of crude a day.
“It increases the cost, not just of energy, but everything we do and everything we buy. And so the price of everything goes up, including food,” explained EJ Antoni, a researcher at The Heritage Foundation, a conservative think tank in Washington DC.
U.S. gross domestic product (GDP), a measure of production of goods and services, fell 0.6 percent last quarter after falling 1.6 percent between January and March. The general rule of thumb for recessions is two consecutive quarterly declines in GDP.
“We have already had a recession in the first six months of the year. It looks like the third quarter will be positive, but after that all bets are off. I think we will be negative again, said Antoni.
Economists have not agreed with that belief, as some indicators point to underlying strength in the economy.
The US trade deficit narrowed in August to the lowest level in more than a year. And Goldman Sachs last week raised its third-quarter U.S. GDP estimate by a full percentage point to an annual rate of 1.9 percent.
The Biden administration continues to argue that the economy is resilient, pointing to the lowest unemployment rate in five decades and unwavering consumer confidence.
But nearly seven in 10 Americans recently said they are worried about a recession, and four in 10 said they are financially unprepared to deal with one if it hits before the end of 2023, according to a poll conducted by by Bankrate, a New York-based financial services company. Business.
So what do the key metrics point to? How do economists make sense between declining markets and a robust labor market? And what does a US recession mean for the global economy?
Majority of CEOs anticipate a recession in the next year
More than eight in 10 CEOs recently said they expect a recession in the next 12 months, according to a new survey by accounting firm KPMG (PDF). Of the 1,300 CEOs of the world’s largest companies surveyed by KPMG, 73 percent said they believe an economic downturn will disrupt growth. On the same subject : Jun 2022 Market Report: Hamptons Hampton Real Estate Works Hamptons While Prices Remain Historic Levels.
Some 39 percent of CEOs have implemented a hiring freeze, while 46 percent are considering reducing their employee base over the next six months, KPMG found.
And it’s hard for them to ignore the data.
Wall Street has fallen in the past year. The S&P 500 — a proxy for the health of retirement and college savings accounts — closed the third quarter at its lowest level in nearly two years. The tech-heavy Nasdaq 100 is down nearly 33 percent so far in 2022, while the Dow Jones Industrial Average has lost more than 20 percent.
Cryptocurrencies, which rose in popularity and price during the pandemic, have also fallen. The world’s top digital coin, Bitcoin, has shed more than 60 percent of its value in the past year, while the second-largest cryptocurrency, Ethereum, fell 61 percent.
US mortgage rates have more than doubled in the last year, locking millions of Americans out of home ownership.
“We could have had a mild, short recession if the Fed, Congress and the president acted much earlier, but now, unfortunately, there’s a huge amount of economic pain already baked into the cake,” Antoni told Al Jazeera.
“One of the tragedies of the Biden administration is that they had the benefit of hindsight. They could have looked back at their immediate predecessor and learned from what worked and what didn’t, but they just continued with bad policies.”
Strong labour market or a ‘desperate’ one?
Tens of millions of Americans quit their jobs during the height of the pandemic in what is now widely known as The Great Resignation. On the same subject : High-tech seafloor mapping is finding amazing structures everywhere. Since then, businesses from gas stations to doctor’s offices have struggled to find workers.
OANDA’s Moya explained that as long as job openings remain high, the Fed will continue to raise interest rates to make borrowing more expensive, hoping to balance demand and supply.
“The Fed will be locked into a corner where they have to tighten policy much more aggressively,” he added.
New data showed last week that the number of job openings in the United States fell by 1.1 million and the number of unemployed rose more than expected. Unemployment hit a half-century low of 3.5 percent in September, signaling a tight labor market.
But not everyone sees it that way.
“I don’t see a strong labor market, I see a desperate labor market,” the Heritage Foundation’s Antoni told Al Jazeera. “We have a disproportionate number of people working multiple jobs. It depends on the job numbers, because every time a person works in another job, they are counted as another job holder.”
“We’ve had a lot of small businesses fail from pandemic shutdowns, and if those people go to work for a big company, they’re now counted in these surveys. So again, even though the number of jobs hasn’t actually changed, the number of employed, the number in the survey,’ said Antoni.
Global setbacks
The COVID-19 pandemic and the war in Ukraine have caused “extraordinary shocks” to the global economy, the World Bank said recently (PDF), warning that progress toward eliminating extreme poverty by 2030 has essentially stalled. Read also : 10 Road Trip Essentials for Summer Travel.
The number of people living on just $2.15 a day rose 11 percent in 2020 — from 648 million to 719 million, according to the World Bank.
A US recession would cause deep pain in developing countries, Richard Kozul-Wright, director of the globalization department at the United Nations Conference on Trade and Development (UNCTAD), told Al Jazeera.
The UN agency issued a dire warning last week that a global slowdown could potentially cause worse damage than the 2008 financial crisis and the 2020 COVID-19 shock.
“If a financial shock is unleashed in the United States, there is no limit to the downside,” Kozul-Wright said.
“Ultimately, the US had the political leeway to strengthen both its economy and its financial system if it finds the political appetite for more bailouts. But most countries in the world, especially in the South, have no real safety net,” he added .
Regarding emerging markets, OANDA’s Moya said many of them have been aggressive in their fight against inflation.
“What has killed them is this relentlessly strong dollar,” he explained. “A recession in the US would mean the days of the dollar are over. And some relief would be good news for emerging markets.”
But again, it’s a very fine line. If the US sinks into a long period of sluggish growth, emerging markets will struggle. Major exporters to the US such as China, Mexico and Canada would feel pain if US demand weakened for an extended period.
As for how severe a US recession could be, Moya echoed the sentiments of many economists Al Jazeera spoke to: “It’s still too early to have a strong conviction with that call, just because we don’t know exactly how sticky inflation is will be and how robust the economy is.”
