CBO valuation in the current recession

From CBO:

The US economy is showing signs of slowing down, but it’s hard to tell if the economy is currently in recession. It is possible that in hindsight it will become apparent that the economy has gone into recession sometime this year. However, this is not clear from the data that was available in early August. Some key indicators point to a slowdown in economic activity in the first half of this year, while others point to continued growth, albeit at a generally slower pace than before.

Real gross domestic product (that is, inflation-adjusted GDP) and industrial production declined. Specifically, real GDP declined by an average of 1.25 percent (year-on-year) in the first two quarters of 2022. Industrial production rose from January to April, remained virtually unchanged in May, and then declined in June.

Other key indicators of economic activity continued to rise in the first half of 2022, although at a slower pace overall than before. For example, real gross domestic income (GDI) increased at an annualized rate of 1.8 percent in the first quarter of 2022, after growing at an average rate of 6.3 percent in the second half of 20212 (GDI data for the second quarter is not yet available). .) Real personal income, excluding federal, state and local government transfer payments to the public, grew at an average annual rate of 0.5% in the first half of 2022, compared to 3.1% in the second half of 2021 And real personal consumption spending rose at an annual average rate of 1.4 percent in the first half of 2022 (with slightly slower growth in the second quarter than in the first), compared with 2.2 percent in the second half of 2021. One of the reasons for the slowdown in personal consumption spending is higher inflation, which has undermined the purchasing power of consumers. Another reason is the decline in real disposable income of the population in the first half of 2022. Savings accumulated during the coronavirus pandemic, including through transfer payments, continued to support consumption.

The labor market remains tight, with low unemployment and higher vacancies, but both have eased in recent months. Net non-farm employment growth averaged 375,000 jobs per month in the second quarter of 2022 compared to 539,000 net jobs added per month in the first quarter and 590,000 net jobs added per month in the second half of 2021. In June 2022, the unemployment rate was 3.6 percent (unchanged since March and close to pre-pandemic lows) and there were about 1.8 job openings for every unemployed person (one of the highest rates in the series’ nearly 22-year history, though and below its highest level of 2.0 in March).

A graphic representation of almost all of these series is in this mail.

For July data, we have the Lewis-Mertens-Stock weekly economic index:

Source: New York Fed via FREDas of 08/04/2022.

Tomorrow we will receive an estimate of the unemployment rate for July. In order to call Sam’s Rule for a recession, the unemployment rate should jump to 5.1% (that is, the 3-month moving average unemployment rate should jump 0.5 p.p. above the lowest unemployment rate recorded last year. Bloomberg Consensus for the Unemployment Rate (U6) to remain constant at 3.6 pp.

Figure 1: Unemployment rate U6 (black), Bloomberg consensus 8/4 (black +), hypothetical rate needed to trigger Sam’s rule (red square). Peak-to-trough dates as determined by the NBER are in grey. Source: BLS via FRED, Bloomberg, NBER, author’s calculations.