The Week in Review: July 11, 2022
Recession? If So, It’s Not Your Grandfather’s Recession
Gross Domestic Product (GDP) is the largest measure of the value of goods and services. It fell in Q1, per the U.S. BEA. It could fall again in Q2 when it’s reported at the end of the month. While one-off factors knocked GDP down 1.6% in Q1, the very narrow and technical definition of a recession is two-straight quarters of negative GDP.
Yet, we just received a strong payroll number from the U.S. BLS—a 372,000 increase in June. The unemployment rate held at 3.6%.
Since the beginning of the year, the economy has added an impressive 2.7 million jobs. Over the last four months, payroll growth has averaged a robust 381,000 per month. Both pieces of data strongly argue against a recession.
Today, job growth isn’t necessarily a reflection of strong economic growth. It’s more a reflection of the huge number of job openings.
Currently, recession talk abounds. Mortgage rates have jumped, and housing sales have slowed. Closely followed surveys of consumer sentiment from the Conference Board and University of Michigan reveal that consumer confidence has cratered.
Corporate profit growth is slowing, according to Refinitiv. And the yield curve has inverted, with the 2-year yield edging out the 10-year yield. It’s a minor inversion, but it’s flashing yellow.
Nonetheless, manufacturing has been improving, consumer and business balance sheets are strong, and the banking system is in good shape, as loan delinquencies are low, according to data from the St. Louis Federal Reserve.
Moody’s Analytics says that consumers still have plenty of stimulus cash in bank accounts, which could support spending. Rising employment also underpins spending.
If we are in a recession, would we see people splurging on expensive airline tickets and hotels?
Economic growth has slowed and the path to a soft landing (a falling rate of inflation that avoids a recession) has narrowed. But if we are in a recession right now, it's shallow and very unusual amid strong spending on entertainment, strong job growth, and an unemployment rate that has yet to rise.
Put another way, it doesn’t fit the broad definition of a recession.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
The worst performing stock in the S&P 500 this year, Netflix (-70%), is still the best performer over the last 15 years with a 6,271% gain. - CompundAdvisors, Jun 30, 2022
If you’re still waiting for a tax refund, there’s a silver lining: it may be accruing interest, and the rate jumps to 5% from 4% on July 1. The kicker: it’s taxable. - CNBC, May 24, 2022
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