See If the U.S. Is in a Recession, It’s a Very Strange One: Economic output is down but the job market is strong, unlike in previous recessions by Jon Hilsenrath of The WSJ. Excerpts:
"The U.S. economy has experienced 12 recessions since World War II, and each one included two features: Economic output contracted and unemployment rose.
Today, something highly unusual is happening. Economic output fell in the first quarter and signs suggest it did so again in the second. Yet the job market showed little sign of faltering during the first half of the year. The jobless rate fell from 4% last December to 3.6% in May."
"The first half of 2022 was . . . a “jobful” downturn, in which output fell and companies kept hiring."
"At the end of June, 1.3 million Americans were collecting federal unemployment checks, substantially fewer than the 1.7 million people collecting them on average each week during the three years before the pandemic, when the economy was considered to be exceptionally strong. The number of people receiving such benefits topped 6.5 million during the 2007-09 recession and exceeded 3 million during the two earlier downturns."
"The official arbiter of U.S. recessions is the National Bureau of Economic Research, a collection of mostly academic economists who place dates on when recessions begin and end, going back to 1857, the first U.S. recession on record."
"One popular rule of thumb is that the economy is in recession when gross domestic product—a measure of the nation’s output of goods and services—contracts for two consecutive quarters, but that’s not the way the NBER sees it. Its eight-member business cycle dating committee looks at a range of monthly and quarterly indicators, including output, income, manufacturing activity, business sales and, perhaps most important, employment levels. Then it makes a judgment call.
“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators,” the committee says.
The indicators don’t always move in sync. In 2001, output didn’t decline much, and GDP didn’t contract for two consecutive quarters, but the NBER called it a recession, anyway. In 1960, inflation-adjusted household income rose, and that was a recession, too.
One common denominator has been jobs. The unemployment rate has increased every time, by as little as 1.9 percentage points in 1960 and 1961 and as much as 11.2 percentage points in 2020. The median increase in the jobless rate among all 12 post-World War II recessions was 3.5 percentage points. The U.S. didn’t escape any of those recessions with a jobless rate below 6.1%."
"between December and May, payrolls rose 2.4 million, or 1.6%. They are a coincident indicator, meaning they tend to rise and fall in sync with broad economic activity."
"Economists surveyed by The Wall Street Journal in advance of the report said they expected the Labor Department to report that the jobless rate held steady at 3.6% last month and payrolls kept expanding."
"The U.S. has recorded more than 11 million unfilled job openings in six of the past seven months, four million more monthly openings than was typical before Covid-19 hit the economy in early 2020."
"labor is scarce—in part because baby boomers are retiring—making firms reluctant to fire the workers they have. The size of the labor force, at 164.4 million in May, was still slightly smaller than the 164.6 million people who were working or looking for work right before the pandemic"
"About two in five economists surveyed by the Journal in June said they saw at least a 50-50 chance that the U.S. enters recession in the coming year, but among them, few saw a big increase in the jobless rate. They forecast a 3.9% unemployment rate at the end of this year and a 4.6% unemployment rate at the end of 2023."
"“Each recession seems to have a different driving force and different duration and impact on jobs and output,” said Peter Klenow, a Stanford University economics professor. “I think of the 1980 recession as Carter credit controls, 1981-1982 as the Volcker recession, 1990-1991 as a credit crunch, 2001 the bursting of the dot-com bubble, 2008-2009 the global financial crisis, and 2020 the pandemic recession.”"
"cycles of inventory building and destocking have been common ingredients in the early stages of past recessions. Firms at times produce too much in anticipation of demand and then have to pull back when the demand doesn’t materialize. In past cycles, production declines associated with inventory reductions set off a series of events that caused recessions"
"At around 18% of sales during the past year, after-tax profits have rarely been higher in post-World War II history. Heading into recessions in 1991 and 2001, firm profit margins had fallen to single digit levels. Firms cut back on spending to build profits, and dragged the economy down in the process."
"Households are flush with cash, too. At the end of the first quarter, they had $18.5 trillion in checking accounts, savings accounts and money market mutual funds, according to Fed data. That was up from $13.3 trillion before the pandemic"
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