Cable news pushes gloom and doom
CNN is relentlessly flogging a prediction from Deutchebank today that the US is heading for a brutal recession based upon inflation (which they say is going to get much, much worse) rising interest rates (which they claim are going much, much higher) and a roaring job market (which they claim is only going to “cool” if we get a recession.) How nice. Apparently, the markets were convinced by their assessment because they tumbled. The Dow lost 800 points.
But I was surprised by all this because that’s not the prediction of a bunch of other economists and financial institutions. For instance, Goldman Sachs issued their statement yesterday:
The U.S. economy probably will grow 3.1% this year even as the Federal Reserve tightens monetary policy to quell inflation, Goldman Sachs said in a forecast on Friday.
That would be the second-fastest pace in 17 years, following 2021’s 5.7% spike in GDP. The unemployment rate probably will fall to 3.3% from 3.9% in 2021, and the pace of home-price gains likely will slow to 8.7% from last year’s record 19% gain, the forecast said.
At issue is whether the Fed will be able to raise its benchmark rate and shrink its balance sheet without sparking a recession. In a survey earlier this month by the Wall Street Journal, economists predicted a 28% chance of a recession within the next 12 months. Jan Hatzius, Goldman Sachs’ chief economist, put the odds at 15%.-
“History proves, some investors argue, that the inflation overshoot and overheated labor market have made a recession all but inevitable,” Hatzius said in Friday’s forecast. “But such claims exaggerate the lessons of a handful of past episodes and understate the uniqueness of the current situation.”
Those unique factors include the worst pandemic in more than a century, which created the supply-chain bottlenecks that sparked inflation, followed by the Russian invasion of Ukraine that sent energy costs soaring, the Goldman Sachs forecast said.
They acknowledge that Ukraine or COVID lockdowns in China further affecting the supply chain could change their forecast. But overall, they just don’t have the grim view that Deutchbank has and I haven’ heard much about it.
Fears of a US recession are the most widespread since the coronavirus locked down the economy in early 2020, but the latest data suggests there’s little to worry about.
With the Russia-Ukraine conflict roiling supply chains and lifting inflation even higher, economists’ outlooks toward the recovery are weakening fast. Growth will very likely come in below initial forecasts, but that doesn’t mean the US is plunging into a new downturn. By nearly all measures, the economy is still roaring back to life, and at a much better pace than seen after the Great Recession.
“We are a bit more remote from the immediate effects of the war compared to Europe, but we will be feeling them over time,” Federal Reserve Chair Jerome Powell said during a panel discussion on Thursday. “But the US economy is very strong, performing very well. By most forecasts, we’ll have another strong growth year this year.”
Markets reporter Sam Ro was even simpler when detailing his optimistic outlook in a Sunday newsletter.
“Despite high inflation, rising interest rates, and geopolitical uncertainty, the economy most certainly doesn’t seem to be headed for a recession any time soon,” he wrote.
The US rebound is alive and well, from breakneck job creation to Americans’ record-breaking spending spree. Here are three charts detailing the strength of the economic recovery amid new recession warnings.
“Despite high inflation, rising interest rates, and geopolitical uncertainty, the economy most certainly doesn’t seem to be headed for a recession any time soon,” he wrote.
The US rebound is alive and well, from breakneck job creation to Americans’ record-breaking spending spree. Here are three charts detailing the strength of the economic recovery amid new recession warnings.
The labor market has flashed some of the most bullish indicators of how the country is rebounding.
Recent data showed the US adding 431,000 nonfarm payrolls in March, a sum that’s still more than double the pre-pandemic average despite high inflation and the labor shortage. The unemployment rate also fell more than expected to 3.6%, nearly hitting the record lows seen before the coronavirus recession started.
The economy has now recovered about 93% of the jobs it lost during initial lockdowns. It took just 25 months to reach that level of progress, an extraordinary speed when compared to other post-war recoveries. By comparison, it took the same period during the recovery from the 2008 financial crisis just to hit the labor market’s lowest point.
The return to the pre-pandemic jobs count is also set to happen three times faster than the employment recovery of the early 2010s. While job growth is likely to slow as the country gets closer to full employment, the labor market’s V-shaped rebound and unusually strong demand for workers suggest the US is far from another downturn.
Consumer spending counts for about 70% of economic activity, making it a crucial fuel for the economy as it returns to pre-pandemic health. The fastest inflation in 41 years raised concerns that high prices would curb shoppers’ spending spree, but data shows the boom lasting well into 2022.
Personal consumption expenditures — the most sweeping measure of Americans’ spending activity — rose 0.2% in February to a record-high $16.7 trillion, the Bureau of Economic Analysis said on March 31. That followed a massive 2.7% leap in February.
The improvement doesn’t just extend the rally, but keeps it handily above the pre-pandemic trend. Government stimulus and pent-up savings boosted spending as the economy reopened in early 2021. Yet the streak has held strong even as aid dried up and inflation soared. There may be new risks on the horizon, but Americans are still spending like the economy just reopened.
The massive spending seen throughout the recovery has also buoyed the measure that Wall Street cares about the most: corporate earnings.
About a fifth of S&P 500 companies have reported first-quarter earnings so far, and the results show little sign of a weakening economy. Seventy-nine percent of companies that have reported their latest figures beat earnings-per-share forecasts, and 69% reported stronger-than-expected revenues, according to FactSet.
More broadly, companies are raking in much bigger profits than they did before the pandemic. S&P 500 earnings per share hit a record $204 at the end of 2021, up more than a third from pre-crisis levels. If first-quarter reports continue to beat forecasts, that figure will climb to even loftier all-time highs.
The stock market isn’t the best economic indicator for forecasting a recession, but with companies notching record profits and spending still on the rise, the recovery is looking plenty healthy across the board.
Now, I happen to think those record profits are largely price gouging which is hugely contributing to the inflation that has everyone spooked, but that’s another subject. Maybe it was just herding today and the markets will recover tomorrow. There’s been a lot of that lately. But it will sure be weird if the conditions laid out in those charts led to recession.
I have no idea what’s going to happen, of course. But it’s clear that those who do engage in predictions are not all on the same page and if the media feels the need to run scare stories, the least they can do is make it clear that there is no consensus.