In the U.S., the second revision to Q1 gross domestic product (GDP) showed an annualized 1.3% growth rate, according to the Bureau of Economic Analysis.
Source: U.S. Bureau of Economic Analysis, as of 5/26/23.
At the same time, the Wall Street Journal’s April survey of economists suggests a 65% probability of the U.S. falling into recession within the next 12 months.
Source: Wall Street Journal survey of economists, 4/15/23. Note: Gaps indicate questions not asked or data unavailable. There is no guarantee that any projection, forecast or opinion will be realized. Actual results may vary. Shaded areas indicate U.S. recessions.
The Richmond Federal Reserve Bank disagrees.
Source: The Richmond Fed “National Economic Indicators,” as of May 2023. Note: Projection is the median, central tendency and range from the March 2023 Summary of Economic Projections. Teal dots indicate median projections. Projections of change in real gross domestic product (GDP) are from the fourth quarter of the previous year to the fourth quarter of the year indicated. Shaded areas indicate U.S. recessions.
Outside the U.S., the International Monetary Fund (IMF) is suggesting modest but positive global GDP growth.
Source: International Monetary Fund, World Economic Outlook, Global GDP forecast as of April 2023. There is no guarantee that any projection, forecast or opinion will be realized. Actual results may vary.
The message that seems to be appearing is that the U.S. and global economies may not be in as bad shape as commonly believed. One counterargument is the deeply inverted U.S. yield curve, which has witnessed longer-term yields at lower levels than short-term rates since Q4 2022. Note in figure 5 that the U.S. has not in recent memory seen a yield curve this inverted for this long without subsequently heading into recession (gray bars), though there is often a lag.
Source: YCharts, as of 6/5/23. Past performance does not guarantee future results. Shaded areas indicate U.S. recessions.
Consumer and small business sentiment is falling as fears grow over inflation, rising interest rates and a potential recession (as shown in figure 6). This trend may prove to be a factor in overall economic activity as consumers and small business owners take a “seek shelter” approach in their behavior.
Source: VettaFi Advisor Perspectives, dshort, data through April 2023. Shaded areas indicate U.S. recessions.
Finally, in figure 7, both the headline U-3 unemployment rate and the less-followed “U-6” partial employment level (workers who are involuntarily working part-time) suggest the U.S. labor market remains tight—a counterbalance to tightened monetary conditions.
Source: U.S. Bureau of Labor Statistics, data through May 2023. Shaded areas indicate U.S. recessions.
At the same time, there are plenty of jobs available, shown in figure 8—though the quantity is declining. But employers continue to find it difficult to find enough qualified workers to fill positions (suggested by the disparity between the job openings level and the hires level). The flat-lining of the quits rate, however, suggests workers are less confident about finding a new job if they leave their current one.
Source: U.S. Bureau of Labor Statistics, data through April 2023. Shaded areas indicate U.S. recessions.
Another countervailing force is the level of jobless claims, one of the 10 closely watched leading economic indicators shown in figure 9. The absolute level of weekly claims continues to rest at low levels consistent with the full employment backdrop prior to COVID-19. In fact, total claims were roughly 100,000, if not more, above their current reading prior to the last five recessions going back to 1980.
Source: U.S. Employment and Training Administration, data through 5/30/23. Shaded areas indicate U.S. recessions.
Summary: We have a “mixed bag” with respect to the U.S. and global economies. Based on the yield curve alone, history has shown the U.S. economy could be headed into a recession over the next several quarters, but it may not be as severe as some are predicting. As the Fed likes to say, it will be completely “data dependent.” Our direction may depend on the Fed’s actions.
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