Is it a recession? | Ecobrowser

Bureau of Economic Analysis announced today that US real GDP fell 0.9% year-on-year in the first quarter on a seasonally adjusted basis. This amounts to two consecutive quarters of falling real GDP, which is the rule of thumb for declaring an economy in recession. The current economic weakness could certainly turn into a recession. But evidence that a recession has already begun is inconclusive.

Year-on-year real GDP growth, 1947: Q2-2022: Q2, with historical average (3.1%) in blue. Calculated as 400 times the natural logarithm of GDP compared to the previous quarter.

New data raised Ecobrowser recession indicator index up to 37.4%, flashing a clear warning sign. This is an assessment of the situation in the economy in the previous quarter (namely 2022:Q1). The index takes into account the fact that we are already seeing GDP fall for two consecutive quarters, but still finding evidence that the US economy did not enter a recession in the first quarter is inconclusive. When Marcel Chauvet and I first developed this index We announced 17 years ago that we would only declare a recession when the index rises to 65% (see pp. 14-15 in our original article). If the Q3 GDP report causes the index to rise above 65%, we will declare a recession at that time and also use the full range of revised historical data available at the time to determine the date the recession is likely to start . Here at Econbrowser, we’ve followed this procedure to the letter as the data unfolded in real time over the past 17 years, successfully dating the start and end of two recessions in real time since we started this blog.

Index of recession indicator based on GDP. The charted value for each date is based solely on GDP data that was publicly available as of one quarter after the date shown, with 2022:Q1 being the last date shown on the chart. The shaded areas represent NBER recession dates that were not used in any way in the construction of the index.

This index is based on GDP data only. But other indicators reinforce the conclusion that it is not clear that a recession has already begun. Soaring unemployment is one of the defining features of any historical recession. How could we be in a recession for 6 months with the unemployment rate still at 3.6%?

However, a loyal reader reminds me that I didn’t keep the emoji for us. Little economy watcher in a timely manner. This is a more subjective assessment of the overall message from a variety of economic indicators. I’m sad to report that now he has resolutely turned .

ten out of twelve The post-World War II recession in the United States was preceded by a surge in crude oil prices. If 2022 does turn into a full-blown recession, that would push the score up to 11 out of 13. One of the mechanisms by which oil price spikes have contributed to historic downturns has been a significant deterioration in consumer sentiment. It certainly was part of the story this time too.

Top panel: Real oil price (WTI divided by CPI) in 2022 dollars. Bottom panel: University of Michigan Consumer Sentiment Survey. Monthly, from 1978: M1 to 2022: M6.

Worried consumers have undoubtedly contributed to the weak growth in real consumer spending this year. But the biggest contributor to the negative GDP growth in the second quarter was the reduction in inventories. More goods were sold than produced. Inventory buildup was a factor making Q4 2021 growth strong, and drawdown is now a factor making Q2 2022 growth weak. Real final sales last year were more stable than real GDP.

And year-on-year GDP growth isn’t as worrisome.

A curious feature of GDP performance for the second quarter was the seemingly strong exports. A fifth of the $100 billion increase in real exports in the second quarter came from oil and oil products. But this just fixes it abnormal liquorice in oil exports in the report for 1 sq. Oil exports returned to the level of the fourth quarter of last year. I believe that quarterly export growth was higher than in the first quarter and weaker than in the second quarter.

The big problem in the future is housing. It’s still too early for the Fed’s tightening cycle to be reflected in housing spending. But if the Fed keeps raising rates, it will eventually happen. And if the current recession does turn out to be the beginning of the 13th post-war recession, that will likely be the deciding factor.

Bottom line: no recession yet, but something to worry about !