The Week in Review: August 1, 2022
A Recession Debate Rages
Gross Domestic Product (GDP), which is the broadest measure of economic activity, fell at a 0.9% annualized pace in Q2. The contraction follows a 1.6% annualized drop in Q1.
Two-straight declines meet the common definition of a recession. Case closed, we’re in a recession, end of discussion… or are we? A recession debate is raging.
The National Bureau of Economic Research (NBER) is the official arbiter of recessions. The nonpartisan group can take months to declare and backdate the start of a recession.
The NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
Well, GDP is down for more than a few months, but is the contraction in GDP spread across the economy?
While business spending fell in Q2 and residential construction got clobbered, falling at a 14% annualized pace, consumer spending, which accounts for 70% of the economy, increased for the eighth-straight quarter, though the pace is slowing.
And Q2 profits are exceeding expectations, per Refinitiv.
Separately, the U.S. BLS said payroll growth has averaged 457,000 per month from January through June. If we’re in a recession, it would be one unusual recession.
In today’s environment, GDP doesn’t tell the entire story. Employment and consumer spending are rising, which suggests we’re not in a recession.
But overall economic growth is uneven and has slowed considerably, while wages have failed to keep pace with high inflation. That has had a tremendous impact on consumer psychology.
Today, housing is under pressure, and layoffs, as determined by the Dept of Labor, are ticking higher. These leading economic indicators are sending a cautious signal.
Maybe the first half of the year might be better characterized by what’s called ‘stagflation,’ stagnant economic growth and high inflation.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
Historical data shows a new bull market typically starts three months after the end of a bear market and jumps an average of 40% in the 12 months after the bear market bottoms. -MarketWatch, June 28, 2022
China’s holdings of U.S. debt has fallen below $1 trillion for the first time in 12 years. Japan, with $1.2 trillion, is now the leading holder of U.S. Treasuries. - CNBC, July 18, 2022
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