Is waiting for the next recession becoming a useless guessing game? Maybe even the event itself has less meaning these days when conditions can change so quickly.
We have declining existing home sales yet surging new-home sales in September. And the first ‘advance’ estimate of third quarter economic growth made a huge jump to 4.9 percent, up from 2.1 percent in Q2.
Economists and pundits have been calling for a recession since the beginning of this year. Yet the Fed’s rate hikes haven’t dampened consumer spending, which grew 4 percent in Q3. It highlights the fact that American consumers power more than 60 percent of economic activity.
And inflation continued to decline, contrary to the Fed’s expectations, which is a growth booster. The personal consumption expenditures (PCE) price index increased 2.9 percent, compared with an increase of 2.5 percent in Q2, per the GDP report. Yet excluding more volatile food and energy prices, the PCE price index increased 2.4 percent, compared with an increase of 3.7 percent.
So where is the recession? It doesn’t have to be two consecutive quarters of negative GDP growth. The US economy began to expand again in the third quarter of 2022 after two quarters of negative growth per the above BEA graph.
The technical definition of a recession is when basic growth indicators such as nonfarm payrolls, retail sales, and industrial production have peaked and begin a prolonged decline.
That could still happen next year if long-term interest rates remain high. Yet who does that really affect? Companies like to plan ahead so corporations can cut back investing in future growth. but our federal government is spending $trillions on modernizing the economy as well as fighting both hot and cold wars.
And retail sales keep expanding. Seasonally adjusted sales came off ground zero (+0.4 percent) in June 2023 and expanded 3.0 percent in September.
Now is a good time for Fed Chairman Powell to announce that inflation has been conquered, as so many economists are doing. For instance, Nobel Laureate Paul Krugman said recently:
“Growth, both in gross domestic product and in jobs, has remained solid. But standard measures of underlying inflation are now under 3 percent and falling. Fancier statistical models maintained by the New York Fed tell the same story, and say that underlying inflation has fallen by half since its peak last year.”
The reason? The Fed’s anti-inflation policies are working. But there is a time lag for higher interest rates to fully affect consumers and investors. Household wealth as well as incomes continue to stay ahead of inflation.
The Federal Reserve recently announced that the average family's net worth jumped 37 percent between 2019 and 2022. That's the largest three-year increase since the Fed began conducting the survey more than three decades ago, according to its latest Survey of Consumer Finances.
It's not only due to consumers being fully employed but a massive increase in housing values during the pandemic when mortgage rates bottomed.
Both the Great Depression and Great Recession were catastrophic times but how often do such events happen? It doesn’t look like we have as much to fear given the current economic recovery.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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