Recession coming in 2022?  Why the economic slowdown is more likely in 2023

Recession coming in 2022? Why the economic slowdown is more likely in 2023

  • Rapper Cardi B asked her Twitter followers when “y’all think they’re going to announce we’re entering a recession.”
  • Today’s economy is unlikely to be in crisis, as most data shows that the recovery is still strong.
  • Still, a growing number of economists see a slight downturn coming in 2023.

Rapper Cardi B has joined the millions of Americans who feel the economy is in shambles.

She asked her nearly 23 million Twitter followers on Sunday when “you all think they’re going to announce that we’re going to a


recession

.” Fears of an impending downturn seem to be everywhere.

Cardi B isn’t the only one who fears the United States is in a recession. Consumer confidence is the weakest in a decade, dragged down by the highest inflation in four decades. Google searches for “recession” are on the rise. More and more Wall Street economists are bracing for a downturn. Americans who fear the country may be in recession have many reasons to do so.

But at the moment there are few signs to suggest that is the case, but growing evidence points to an economic slump in 2023.

Despite all the headlines, debates, indicators and predictions, recessions are fickle things. They can vary widely in their severity, cause, and results.

Here’s what you should say when someone asks you what’s going on in the economy.

The most commonly used criteria for a recession have not been met

The National Bureau of Economic Research says recessions require “a significant drop in economic activity that spreads throughout the economy and lasts for more than a few months.” While the coronavirus crash was relatively short from peak to trough, the size and magnitude of the decline was sufficient to meet NBER criteria.

By this standard, it is unlikely that the US economy is currently in a recession. Economic output shrank at an annualized rate of 1.4% in the first three months of 2022, but that’s nothing like the 31.2% plunge seen in the second quarter of 2020.

Much of the decline was also fueled by slowdowns in net exports and inventory accumulation, not a general decline in economic activity here at home. The slowdown in trade was largely fueled by increased imports at a time when Americans are buying a ton. The drop in business inventories, meanwhile, is more akin to a return to normal, since the previous quarter had seen their accumulation soar.

Without these two factors weighing on overall GDP, the economy would likely have recorded another quarter of blistering growth. Consumer spending, which accounts for about two-thirds of GDP, grew at an annualized rate of 2.7% and business investment grew at a pace of 9.2%, suggesting businesses are still seeing good prospects for the future.

The economic recovery is still running out of steam

Believing that the economy is currently in a recession also ignores several signals that it is continuing to grow at a healthy pace. According to the most watched indicators, the recovery is alive and well.

Job creation, for its part, remains about twice as strong as the pre-pandemic trend. The United States added 390,000 nonfarm payrolls through May, beating economists’ forecasts and keeping the country on track to recoup all of its lost jobs by the end of the summer.

Despite some layoffs at top tech companies, jobless claims are still near pre-pandemic lows, suggesting companies aren’t laying off en masse to cut costs.

Inflation may be extraordinarily high, but that hasn’t stopped Americans from pouring more fuel into the economic engine. Spending at retailers and restaurants hit a record $677.7 billion in April, dashing forecasts that soaring prices could finally weigh on demand.

Recession forecasts make 2023 the year of the recession

Just because the economy is doing well today doesn’t mean a recession isn’t on the horizon. A handful of economists have predicted a downturn in the near future, arguing that the Federal Reserve’s aggressive rate hikes will slow growth. Yet even these forecasters don’t see the crisis starting until at least the end of 2022, with most projections pointing to 2023 as the year of concern.

The lag comes down to how slowly Americans are changing their spending habits. Demand for goods surged early in the pandemic as lockdowns dampened spending on in-person services. This drove spending on goods well above the pre-crisis trend, where it remains to this day.

This rally is expected to reverse through 2022. Economists at Deutsche Bank – the first major bank to call for recession – expect spending on goods to return to pre-pandemic trend as the demand falls on services such as travel and catering.

The return of spending on goods won’t trigger a severe downturn, but it will be enough to slow economic growth next year, Brett Ryan, senior US economist at Deutsche Bank, told Insider.

“The type of recession we envision is not like a severe, massive drop in consumer spending across the board,” he added.

So no, the United States is probably not in a recession today. But as demand cools and the economy settles into a new normal, more economists are forecasting a mild slowdown ahead next year.

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