Is A Recession About To Occur Or Already Here?
Traditionally, the technical term “recession” is defined as two consecutive quarters of declining GDP alongside monthly economic data like growing unemployment. The average consumer may see that definition as irrelevant, as it looks like a recession may already be here.
For them, the National Bureau of Economic Research, which is tasked with declaring when a recession has begun, has changed the definition slightly. The NBER now defines it as a significant contraction in economic activity that lasts more than a few months, as seen in real GDP, real income, employment and other monthly indicators.
However, the fact that the definition of “recession” means we can’t know that we’re in one until two straight quarters have passed means very little to the average consumer. Meanwhile, the mixed economic data we’re seeing makes seeing just how bad things are more challenging.
How Mainstream Media Is Spinning The Jobs Data
For example, government data on unemployment released this week shows that the employment market remains strong. The report from the Bureau of Labor Statistics showed 11.3 million job openings and that about 4.3 million Americans changed jobs or quit in May, which suggests people are comfortable about being able to find another job. Layoffs remained low too.
Despite the robust data, news headlines suggest this is about to change. Numerous tech firms, from Netflix to Coinbase, have announced thousands of layoffs, indicating that layoffs and potentially joblessness are poised to increase.
Additionally, news outlets are constantly spinning the data from government reports to emphasize what they want to say. For example, CNN highlighted the strength of this week’s job data, while CNBC led with the increase in new jobless claims.
Unemployment rose to its highest level since January, at 235,000 for the week that ended on July 2. CNBC also noted a separate report from job placement firm Challenger, Gray and Christmas, which emphasized a 57% increase in planned layoffs.
Inflation And Interest Rates
Meanwhile, inflation remains at the highest levels in 40 years, leaving the Federal Reserve with no recourse but to raise interest rates and tighten during a time of economic weakness. Usually, a slowing economy with rising unemployment would have the Fed cutting interest rates, but it can’t do that right now because inflation is skyrocketing.
Although the Fed is raising the federal funds rate, mortgage rates are responding to the signs of economic slowing by dropping. This is the second straight week of declines in mortgage rates, with the 30-year fixed-rate mortgage averaging 5.3% in the week ending July 7.
According to Freddie Mac, the 30-year rate averaged 5.7% the week before. Additionally, the 30-year has declined half a percent over the last two weeks, the biggest drop since 2008, which was marked by the U.S. housing crisis. At this time last year, the 30-year fixed-rate mortgage stood at 2.9%.
Despite the falling mortgage rates, which are linked to widespread concerns about economic slowing, demand also continues to sink.
Signs Of A Recession
Demand, in general, is starting to come down as people are paying significantly more for necessities. Experts told The Hill that the relief at the gas pump is due to declining demand for gasoline because people can’t afford to drive as much as they did before.
And there are other signs of a recession. According to Barron’s, copper prices recorded their largest quarterly percentage decline in over 10 years and are now trading at their lowest level since November 2020. The site also reports that copper prices are flashing a recession warning.
Bonds are also flashing a recession warning as a key part of the yield curve inverted again. A survey conducted by Russell and shared with Reuters shows that fixed-income managers expect U.S. inflation to stay above the Fed’s 2% target for longer. The last reading showed U.S. inflation at 8.6%.
Although technically, we can’t know if we’re in a recession until at least two quarters of economic decline have passed, all these indicators make it clear why the average consumer may believe a recession is already occurring.
This post originally appeared at ValueWalk.com.
Category: Bonds
