Are we in recession? (No)

 

Are we heading for recession? According to several observers, this is almost no longer a question, but rather a seeming one Executed work.

I am skeptical, but others are much less. Here is the typical cool planet money:

“So, are we heading for recession? Dark animal spirits – or bad vibes – can be us. The Fed policy suggests the same. Covid, and skyrocketing oil prices continue. In short, despite low unemployment, continued job growth, and other signs of economic health, there are warning signs that a The recession is coming, if it is not already here(Emphasis added)

As a reminder, the official definition of NBER is “A recession involves a significant collapse in economic activity that spreads across the economy and lasts for more than a few months.In particular, the criteria include “depth, breadth and duration” – none of which are present today.

In terms of economic data, it is shocking (if not stupid) to say that we are in recession right now. As mentioned, “low unemployment, continued job growth and other signs of economic health” embody that time. Second, because the economy is cyclical, it means a recession is always coming. (For a reason it is called “business cycle”).

The main problem is time. A recession imminent?

I do not think so. Not in this quarter or third quarter. I also doubt the fourth quarter of 2022 (possible, but impossible).

Why? Because most of the leading indicators of economic contraction 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 down 13.3% and down nearly 20% from its all-time high. But none of this is decisive.

Instead, consider the chart above via Deutsche Bank’s Matt Lujetti It shows the monthly state index of the Federal Reserve Bank of Philadelphia. I cherry-picked this chart because of its good historical track record of showing a drop before the recession, and because of its nature, it spreads (50 states) and duration (time series) – this is 2 of the 3 NBER contraction causes.

When we make a “comparison and contrast” of 2022, each of which has 6 previous recessions going back 43 years from 1979, we do not see the initial signs of contraction in any of the 50 states. This data series is an early warning that the recession was likely to increase. But it took a few quarters or even years for state-to-state slowness to develop. Instead of showing 50 states expansion before the recession started, which dropped to 45, 40, then 35 before the recession started (and the number of expanding states dropped to 10, 5, or 0).

The current monthly Coincidence State Index shows all 50 states economically expanding. This not only makes it impossible for us to be in today’s recession but also makes it very unlikely that we will be in recession anytime soon.