Is the United States in a recession? Or is the economy all rolled into one? It almost doesn't matter.
For many Americans it already feels like a recession. Rising prices, well, pretty much everything, is making it harder to pay for daily expenses and monthly bills. The stock market collapsed this year. Home sales begin to falter. Consumer confidence is low.
A recent Morning Consult / Politico poll found that in mid-July, 65% of voters in the United States said they think we are in a recession ... The Covid epidemic and the start of the latest recession. And according to a survey by the Boston Consulting Group last month, nearly 80% of investors expect a recession in the United States to begin within the next 12 months ... and more than half of respondents think it will happen before the end of 2022.
So, if you believe the perception is reality, these numbers could be just as important, if not more important, than actual data on employment growth and the economy in general.
"People are preparing for the fact that we are already in a recession or there is a good chance that we will soon be," said Hady Farag, partner and associate director of Boston Consulting Group.
The Federal Reserve will have to keep inflation fears in mind as it tries to balance aggressive rate hikes with concerns that too tight will destroy growth.
The Fed is expected to raise interest rates by another three-quarters of a percentage point this month, following a similar huge move in June. “The word recession casts a long shadow over the markets, but somehow the only way out of this inflationary environment is for central banks to trigger this recession,” said Mabrouk Chetouane, head of global market strategy. at Natixis Investment Managers Solutions. in a report this month.
Against this backdrop, investors should prepare for the slowdown that appears to be underway, and policymakers should prepare for slower growth…or worse.
The US economy contracted in the first quarter and investors are eagerly awaiting Thursday's gross domestic product report to see if GDP contracted again in the second quarter.
Although two consecutive quarters of negative numbers is the common understanding of a recession, it is not the official definition.
A group called the National Bureau of Economic Research is responsible for officially declaring the start and end of the economic downturn – and the NBER has typically waited several months before making decisions on recession dates. Treasury Secretary Janet Yellen said in an interview aired Sunday on NBC's "Meet the Press" that a recession is "a large economic downturn affecting many sectors" and added that she would be "surprised" if the NBER said the economy is now in recession.
But you can probably expect a lot of headlines and political speeches about a recession this week if the second quarter GDP report is negative.
Not all recessions are created equal"Recession is not our base case. We continue to expect the economy to slow significantly, but avoid a recession in 2022," said Katie Nixon, chief investment officer of Northern Trust Wealth Management, in a recent report. But she added that "it is still possible that the technical definition of a recession will be met".
Farag of the Boston Consulting Group also pointed out that even though the economy has already entered recession mode, that doesn't mean a recession will be as long and painful as some past recessions. He said most investors don't seem to be expecting a repeat of the early 1980s or another major recession like the one in 2008.
“No two recessions are the same. I don't think people are very concerned about a major recession or massive stagnation," he said.
We should also remember that in the event of a recession, the Fed could quickly change course and lower rates again in an attempt to revive the economy.
That's exactly what the central bank did after a series of rate hikes in 1999 and early 2000, just as the dot-com boom hit. But when the economy went into recession in 2001, the Fed cut interest rates 11 times that year.