From the Big Picture:
Are we heading into a recession? According to quite a few observers, this is almost no longer a question, but rather seems to be a fait accompli.
I am skeptical, but others are much less so.
As a reminder, the official NBER’s definition states “a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.” Specifically, the criteria include “depth, diffusion, and duration” — none of which is present today.
Given the economic data, it is startling (if not foolish) to state we are in a recession right now. As noted, “low unemployment, continued job growth, and other signs of economic health” make that timing moot. Second, because the economy is cyclical, it means a recession is always coming. (It’s called a “Business Cycle” for a reason).
The key issue is timing. Is a recession imminent?
I think not. Not in this quarter, or the third quarter. I am doubtful even the fourth quarter of 2022 (possible, but improbable).
Why? Because most of the leading indicia of economic contractions are not present today. Inflation remains a concern, and the biggest warning sign is the stock market: Year to date, the S&P 500 is off 13.3% and fell nearly 20% from its all-time highs. But neither of those are determinative. As my colleague Ben Carlson points out, bear markets can occur outside of a recession, and “they tend to be shallower and less lengthy while recessionary bears are greater in both.”
The current monthly coincident state index shows all 50 states economically expanded. That not only makes it impossible for us to be in a recession today but also makes it highly unlikely we will be in a recession anytime soon.