6 indicators separate the world’s largest economy from entering a recession

It did not happen US economy On the note that it is already supposed to be in the doldrums. The GDP report released on July 28, which showed that the economy contracted for the second consecutive quarter, prompted some to insist that a much-feared recession had already arrived.

This makes sense in some ways. Since 1948, each successive quarter of negative growth has coincided with stagnation. But the recession argument here has been severely undermined since the release of the GDP report. A series of events in the past 10 days suggest that these calls for stagnation are, at least, premature.

In the context of recent developments, the US economy added more than half a million jobs in July alone. The unemployment rate fell to 3.5%, the lowest level since 1969. Inflation calmed down (relatively) in July for both consumers and producers.

Also, gas prices fell below $4 a gallon for the first time since March. Consumer sentiment also rebounded from record lows. Finally, the stock market achieved its longest streak of weekly gains since November.

Moody’s Analytics Chief Economist Mark Zandi has increased his confidence that the US economy is on track for a healthy recovery. He added, “This is not a recession. It is not even in the same universe as a recession. It is completely wrong to say that it is.”

He explained that the only thing that indicates continued stagnation is those consecutive quarters of negative GDP. However, he expected that these GDP declines would eventually be revised. There are early indications that GDP will turn positive this quarter.

Despite indications that inflation rates are beginning to decline, this does not mean that the economy is out of trouble. Recession remains a real risk, especially in the coming year and in 2024 as the economy absorbs the full impact of the Federal Reserve’s brutal interest rate hike.

The economy could still falter so much in the coming months that economists at the National Bureau of Economic Research, the official arbiter of recessions, announced that the recession began in early 2022. But for now, it’s too early to confirm that.

The biggest problem in the argument that a recession has already begun is the fact that employment rose – dramatically – in July. The US added about 528,000 jobs over the past month, bringing payrolls back to pre-Covid levels. An economy in recession does not add half a million jobs in one month.

The danger is that the Fed ends up slamming the brakes so hard that it slows the economy into recession.

There is a growing sense that the worst may be over on the inflation front. Finally, the biggest inflation problem – gasoline prices – has been greatly reduced. The national average for regular gasoline is now down more than $1 since hitting a record $5.02 per gallon in mid-June.

In addition to gasoline, diesel and jet fuel prices are also falling, relieving inflationary pressure on the rest of the economy. The energy slowdown lowered inflation measures in July and should do the same, if not more, in August.

In a recent statement, the Bureau of Labor Statistics said consumer prices were 8.5% higher in July than they were a year ago. Although this is still alarmingly high, it is down from a 40-year high of 9.1% in June.

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