Whether or not the US is entering into a recession has been a topic of hot debate the last quarter. You see, the US has had two consecutive quarters of negative GDP growth in 2022.
Now, most economists, up until this year, would have told you that this in fact a recession. So, when we saw the announcement some time back, it seemed like a foregone conclusion that a new recession was here. But the Whitehouse said “Not so fast!”, and economists seem to be listening to them.
Or are they?
It’s all so confusing, so I decided to take a deeper dive into whether economists actually agree about this. And while they seem to, not many really want to say it’s actually happening right now, even though that is what the data appears to be telling us.
Jobs, Jobs, Jobs!
So, the Whitehouse floated the idea, ahead of the Q3 GDP print, that just having a contraction in growth doesn’t mean we are in a recession. After all, they argued, the economy had been adding all these jobs and that means we are growing. Which is a fair point, if a somewhat obtuse one.
Here are the employment numbers for 2022, per the BLS, for your reference.
Certainly, looking at that chart of the U6 unemployment statistic from the BLS, one would assume that the pandemic job losses had all been replaced and it was a symbol that the economy was healing. That seems also to be a fair point, except that this view of employment is a fairly narrow one.
The next chart from the BLS gets more interesting. This one is called the Labor Force Participation Rate, and essentially the BLS is measuring how many able-bodied, working-age adults have jobs versus those that don’t. The difference in this data set is the BLS adds back in those workers who have been unemployed for more than a year, which the U6 unemployment number, shown above and quoted all over the mainstream media, declines to count.
Looking top down at unemployment in the US using this chart gives a much more comprehensive picture of just how much economic recovery we have really had. After all, consumers are nearly 3/4 of the US economy, so it helps to know whether they can afford the same lifestyle they did in the past when talking about GDP growth in the future.
So, has the economy actually recovered, from a jobs perspective, from the last two recessions? It doesn’t appear that is the case. What point is the current administration making with regard to jobs? I am not sure, since fewer jobs typically mean less spending by all of us in the cheap seats who do the majority of the household buying.
While the recent recovery in short-term jobs picture has been a really nice story, I think it’s also easy to cherry-pick data to support an argument. Especially when the timeframe for measuring success has been shortened to cover up the longer-term issues in US labor that have not, as of yet, been remediated through the last 20 years of economic and fiscal policies.
Other Data Points To Consider
I think it fair if we are going to have a public conversation about what constitutes a recession, to include a broader picture of the economy. So far, we have talked about labor participation and GDP growth. What else matters?
In my last article, I made the case that bond rates are pointing in the direction that the economy is trending. The 10-year US treasury has stayed above 4% while the 2-year is even higher, meaning bond investors expect MORE risk in the short term than the long. This indicator, called the yield curve, between the 10- and 2-year US bonds has long been considered the most prescient recession indicator, and it has been flashing red long enough that investors should stand up and take notice.
A second point I made, also in a recent JM Bullion article, is that the US has not seen positive aggregate corporate earnings growth in a year (since Q3 2021). And growth in that quarter a year ago was only 0.2%, hardly a strong case for economic growth. In fact, despite some recovery in the corporate sector in 2021 post-pandemic, the corporate earnings picture has looked bleak dating all the way back to 2018, per the chart.
Expert Opinion Varies
In a recent article at Marketwatch covering the economic growth numbers, some economists believe that recession is here and likely will be pretty rough. For example, “The US economic downturn gathered significant momentum in October, while confidence in the outlook also deteriorated sharply,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Other analysts were not so sure, such as Goldman Sachs. “However, on Monday, economists at Goldman Sachs said that talk over a recession was overblown.”
Let’s broaden our search to the World Economic Forum publication from September 2022, titled Chief Economists Outlook. Despite the report using terms such as ‘the outlook darkens’, ‘global growth falters’, and the more alarming ‘food and energy security under threat’, the economists polled largely downplayed the risk of a current recession, with most pushing their expectations of a world recession into next year.
If things like a darkening outlook, falling global growth, and issues with food and energy security do not paint the picture of a recession, well then what does?
Do You Want the Good News or the Bad News First?
I would argue that the point around a current recession is moot when we aren’t sure whether we can eat or run our air conditioners next year. Hey, in Texas where I live, AC is WAT more important than heating! But for you northerners that like to live in the snow 6 months out of the year, stacking up on wood and heating oil for the winter might be a good idea too.
Further, the fact that ‘social unrest is on the rise’ makes up an entire section of the WEF report seems to lessen the significance of whether the US is already in a recession or likely faces one starting in 2023. At the end of the day, it’s all semantics about what data point officially starts the calls for recession.
The point is, we are all facing declining productivity, more pressure on jobs and therefore spending, pressure on corporates to tighten the belt and get back in the green, and potential for higher inflation as things we used to take for granted (such as energy, food, and transportation) become bigger concerns in 2023.
For now, I would say let’s worry about the upcoming holiday season and see if we can get the US economy back on track. It is, after all, our biggest consumer spending season, and the last chance to end 2022 on a positive note.
Remember the Precious Metals!
And for that reason, this is an apropos time to point out that gold and silver bullion make EXCELLENT Christmas and holiday gifts. They are extremely popular and hold value over time, so you are really transferring paper dollars with declining purchasing power into long-term stores of wealth at a time when having ANY wealth in reserve could be the most important decision we make for our futures as we face what looks like a pretty nasty economic pullback.
(See, I didn’t use the term recession. We can all do it!).
JM Bullion just happens to have a wealth of options for the holidays. In particular, I love this series of silver holiday products myself. And for a few more days, you can still take advantage of the Halloween bullion that are both spooky and fun.
And if you are feeling generous and want to donate some to your intrepid author, well I certainly won’t stop you. But I certainly won’t blame you if you decide to stockpile for yourself. We all certainly have plenty of reasons for 2023.
Whatever happens next, know that you are in the right place. The decision to read this blog post is one of many important steps in taking control of your own financial situation. And you should be applauded for doing just that. Just remember to tell your friends and neighbors because they are going to need the help too.
However, don’t wait too long, because once the word ‘recession’ finally gets used in official circles, long-term PM investors like me may have bought out all the cool bars and rounds available. The rest of the world will be scrambling for what’s left, which may not be nearly as much as we all need.
Here’s hoping 2023 turns us around and we see greener pastures ahead. But given the current data and outlook, I am not holding my breath. Better safe than sorry, I always say.