Washington –
Warnings that a recession would hit the United States have been sounding for more than a year. If not this quarter, by next quarter. Or the next quarter. Or maybe next year.
So is the recession still in sight?
The latest signs suggest otherwise. Consumers continue to spend and employers keep hiring, thanks to a series of aggressive interest rate hikes by the Federal Reserve, despite significantly higher borrowing costs. Gasoline prices fell, food prices remained flat, and the purchasing power of the American people increased.
The economy continues to grow. And among some economists, the U.S. has indeed achieved an elusive “soft landing,” where growth slows but households and businesses spend just enough to avoid a full-blown recession. It is the same with the idea that it may be done.
“The U.S. economy is really showing signs of resilience,” said Gregory Daco, chief economist at tax and consulting firm EY. “This is right for many to question whether the long-anticipated recession is really inevitable or whether a soft landing for the economy is possible,” he said.
Analysts point to two trends that could help prevent an economic contraction. Some say the economy is in a “rolling recession,” in which only some industries are contracting and the economy as a whole remains above water.
Some believe the US is experiencing a so-called “rich session.” Large-scale layoffs are concentrated in high-wage industries such as technology and finance, they say, with many professional workers who generally have an economic cushion to withstand layoffs. As a result, job cuts in these sectors are less likely to sink the economy as a whole.
Yet the threat looms. The Fed will almost certainly raise rates at least one more time and keep them high for several months, thereby continuing to impose heavy borrowing costs on consumers and businesses. That’s why some economists warn that a full-blown recession is still possible.
“The Fed will continue with its policy until the inflation problem is resolved,” said Elena Shulyatyeva, an economist at BNP Paribas.
Here’s how it all unfolds:
It’s a rolling recession
When different sectors of the economy contract in turn, with some declining while others continue to expand, it is sometimes called a “rolling recession.” The economy as a whole has avoided a full-blown recession.
The housing industry was the first to take a hit since the Fed began raising interest rates sharply 15 months ago. Home sales plummeted as mortgage rates nearly doubled. It is now down 20% from a year ago. Manufacturing soon began. In addition, although the situation is not as severe as housing, factory production decreased by 0.3% from the previous year.
And this spring, the tech industry was hit by a recession. In the aftermath of the pandemic, Americans are spending less time online and instead more frequent physical store shopping and restaurant trips. The trend has forced major layoffs among tech companies such as Facebook parent company Meta, video conferencing provider Zoom and Google.
At the same time, consumers have increased their spending on travel and entertainment, fueling the economy’s vast services sector and offsetting hardships in other sectors. Economists say they expect such spending to slow in the second half of the year as the savings many households saved during the pandemic continue to dwindle.
By then, however, the housing market may have picked up enough to pick up the baton and drive economic growth. There are already signs that the industry is starting to recover, with new home sales up 12% from April to May despite high mortgage rates and home prices well above pre-pandemic levels. .
Other sectors should also continue to expand, providing a platform for overall growth. Evercore ISI analyst Krishna Guha said some sectors of the economy, from education to government to health care, are less sensitive to rising interest rates, so they are still hiring and probably will continue to do so. point out that it will continue to
“I think these gradual sectoral recessions will be a big part of the story,” if the U.S. economy achieves a soft landing, Guha said.
it is “abundance”
Wealthy Americans aren’t necessarily suffering, especially since the stock market is recovering this year. But it’s also true that most of the high-profile job losses that began last year have been concentrated in higher-paying jobs. This pattern is different from what typically happens during a recession. Low-paying jobs are usually lost first in areas such as restaurants and retail, and the numbers are depressing.
That’s because in most recessions, restaurants, hotels, and retailers lay off workers en masse when Americans start spending less. With fewer people buying homes, many construction workers are out of work. Sales of expensive industrial goods such as cars and appliances are trending downward, leading to job losses in factories.
This time, so far, no such thing has happened. Restaurants, bars and hotels are still hiring, and in fact they are the main drivers of job growth. And to the surprise of labor market experts, construction companies are still hiring more workers, despite rising borrowing rates that often deter construction of residential and commercial buildings.
Instead, layoffs are occurring, mostly in white-collar and professional jobs. Uber Technologies announced last week that it will cut 200 hiring managers. Earlier this month, Grubhub announced it was laying off 400 of its in-house workers at the delivery company. Financial and media companies have also struggled, with Citibank earlier this month saying it would cut 1,600 jobs in the April-June quarter.
Economists say many of the affected workers are well-educated and likely to find new jobs relatively quickly, keeping unemployment rates low despite the layoffs. For example, now not only the federal government but also hotel, retail and even railroad employers are seeking to hire people laid off by tech giants.
Richmond Fed President Tom Birkin said wealthy workers typically have savings that they can tap into after they lose their jobs so they can continue spending and boost the economy. As such, white-collar job losses don’t tend to dampen consumer spending as much as blue-collar job losses, Birkin suggested.
“It’s easy to imagine that this could be a different kind of labor market softening,” Birkin said. ‘” Birkin said in an interview with The Paper. Associated Press last month.
Or maybe there won’t be a recession
The most optimistic economists say they are growing hopeful that a recession can be avoided even if the Fed keeps rates at their highest levels in the coming months.
They point to a string of recent economic indicators that have been better than expected. Most notably, employment has remained surprisingly resilient, with employers steadily adding about 300,000 jobs on average over the past six months and the unemployment rate at 3.7%. It is still at the low level of nearly half a century.
The manufacturing sector also disappoints bleak expectations. On Tuesday, the government reported that businesses stepped up orders for industrial machinery, rail vehicles, computers and other long-term goods last month.
Many analysts are encouraged that some threats to the economy have not turned out to be as bad as feared, or have not surfaced at all. For example, a congressional dispute over a government borrowing limit that could have caused a default on Treasury bills was resolved without major disruption to financial markets or a noticeable impact on the economy.
And for now, the banking turmoil that erupted last spring after the Silicon Valley bankruptcy has largely subsided and doesn’t appear to be weakening the economy.
Jan Hadzius, chief economist at Goldman Sachs, said earlier this month that the receding threat would cut the chance of a recession within the next 12 months from 35% to just 25%.
Other economists say the economy has not faced the kind of dangerous imbalances and events that caused recent recessions, such as the stock market bubble of 2001 and the housing bubble of 2008.
“Recession risks are receding rapidly,” said Neil Dutta, an economist at Renaissance Macro. Whether we’re in a mild recession or a “rich recession,” he said, “it’s not a recession if you have to call it something else.”
