A strange economy that may (or may not) turn into a recession
The US economy is being stifled by inflation, volatile markets and weak activity, all of which suggest growth is slowing but hasn’t fallen off a cliff – yet.
why does it matter: This same weirdness has opened a chasm between what official data reflects and the perception of ordinary consumers – relatively flush with cash but ravaged by hot prices that eat away at purchasing power.
- The paradox is that consumers, despite their gloomy mood, maintain growth and inflation by continuing to spend. This in turn encouraged companies to pass it on at higher prices.
- Also, the job market is as tight as ever, awash with vacancies (hello the Great Depression), and the economy is generating above average job growth despite higher prices.
driving the news: US GDP figures due for release on Thursday mayo It showed that the economy contracted for the second consecutive quarter — which meets the textbook definition of a recession even if officials hate it.
Even if GDP prints negative this week, It’s not likely to settle the raging recession debate, not least because the National Bureau of Economic Research (NBER) could take months or longer to make a formal announcement.
what are they saying“Consumers are still spending their hearts on the net, which prevents a recession from becoming a reality,” says Chris Robke, chief economist at FWDBonds.
- “The old rule of thumb from the 1980s is that three straight months of declining retail sales mean the economy has fallen from a cliff into a recession… [but] The economy has not even entered the danger zone warning that a recession is imminent.”
zoom outHowever, this does not prevent segments of the market from making an early judgment, as cracks are starting to form in the foundation of what previously supported strong growth.
Bottom line: Hence, the weirdest economy ever could end up dodging a recession. Can.