Snapshot: Recession. Are We There Yet?

July 18, 2022

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Growth forecasts are down, but are they out? In spite of negative growth in Q1 and a slowdown in Q2 growth expectations, our colleagues in Global Investment Research are doubtful that the US is already in a recession.

Who gets to decide? No matter what you’ve heard about two quarters of negative growth defining a recession, the official call in the US is in the hands of a committee of economists – the NBER (National Bureau of Economic Research) Business Cycle Dating Committee.

How do they decide? They say a recession “involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.” Right now, many of the indicators the committee tracks – including gross domestic income, industrial production and payroll employment – are still growing.

But what’s the most important factor? Our colleagues believe the path of inflation is the most important factor in recession risk. But while we’ve just hit a new 40-year high in headline CPI, the path may be taking a turn. Slower growth and a stronger supply chain seem likely to bring inflation pressures down as the year goes on.

What else should we be watching? The payrolls report shows job gains are still going strong but, according to our economists, other indicators leave no doubt that a slowdown in the labor market is underway. Job openings and quits are declining, jobless claims are rising, and many companies have announced hiring freezes or slowdowns. Still, June’s 36-year-high rent CPI number is concerning because rent hikes are sticky and could keep inflation running hot.

If not now, when? Our expert economists down the hall give us a 30% chance of a recession in the next 12 months and a near-50% probability in the next 24 months.

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