A thorough study of the economy was released by CNN on July 18 and may have been authored by a theater major in high school who was attempting to pass his Econ 101 class. The network predicted that a recession “could be miles away or it could be right around the corner.” Indeed, economists and market analysts have been predicting a full-blown recession ever since the US economy emerged from a brief technical recession in the first half of 2022.
Their expectations were reasonable given that all of the key indications of a downturn have been flashing red for some time now and continue to do so. So what exactly is going on with the recession? Let’s examine those signs now.
The Conference Board Leading Economic Index (LEI) declined in June for the fifteenth consecutive month, dropping to 106.1 at a slower-than-anticipated rate of 0.7%. This was the lowest figure since July 2020 and was caused by a rise in initial unemployment claims, a decline in house development, weaker new orders, and pessimistic consumer expectations. According to our predictions, the US economy will probably be in a recession from Q3 2023 to Q1 2024. Prices are on the rise, monetary policy is becoming more restrictive, credit is becoming more difficult to obtain, and government spending is declining, according to Justyna Zabinska-LaMonica, senior manager of business cycle indicators at the CB. Because it has correctly predicted eight straight US recessions, the CB’s LEI has shown to be a reliable instrument for economists.
Recession Indicator: Yield Curve Inversion
Is it time to accept the inversion of the yield curve? Since the Second World War, this statistic has accurately predicted all but one recession, despite the fact that experts have argued over its merits over the past year. The spread between the closely watched two-year and ten-year Treasury yields has remained locked in the red for the past twelve months, circling about a negative 100 basis points since March. The three-month and ten-year spread, the Federal Reserve’s preferred recession indicator, has been stuck in a deep freeze, plummeting to as low as -180 basis points in May. Financial markets pay attention to this because it demonstrates how, in reaction to slowing economic development, interest rates will rise in the short term and fall in the long run. Every time the spreads changed to the negative side, a recession always ensued a few months later.
Money Supply
The Fed’s printing press ran nonstop during the coronavirus pandemic, producing more than one-third of all US dollars ever printed in the country’s history in just over 18 months. However, it has been on a declining trend since reaching a peak in February 2021, finally decreasing in December 2022 for the first time ever since the Federal Reserve began keeping track of this data. According to the most recent Eccles Building data, the money supply shrank by 3.97% in May, an unexpected improvement from a negative 4.62% in April. Nevertheless, it has consistently predicted recessions, correctly anticipating seven of the last nine downturns.
GDI
The present administration discounted the data when the US economy experienced consecutively negative GDP growth rates in the first two quarters of 2022, claiming that the country’s robust labor market made it impossible for the nation to be in a recession. In order to demonstrate that there was no recession, Treasury Secretary Janet Yellen went so far as to use the average of the GDP and GDI known as the gross domestic output (GDO). What a difference a year can make, I suppose. The real GDO has declined for four of the previous five quarters, according to a recent research by Liberty Nation. “The GDO was -0.35% in the fourth quarter of 2022 (+2.6% GDP and -3.3% GDI). The GDO was -0.5% in the first quarter of 2023 (+1.1% GDP and -2.3% GDI). Despite the fact that this is not a typical signal, we are relying on what the White House has to say.
Got Recession?
Despite the president’s Bidenomics marketing push, US voters are rarely adopting his economic philosophy. According to the most recent CNBC All-America Economic Survey, only 37% of Americans approve of how Biden is handling the economy. This is not shocking given that 47% of Americans believe the US is already in a recession, according to a recent YouGov-Economist poll. Although the US has not yet officially entered a downturn, it is difficult to find fault with anyone for believing that the US is experiencing a bear market. Real (inflation-adjusted) salaries have only lately started to rise, but the cost of living remains unaffordable and grocery prices are out of control. It may only be a matter of time until a recession happens as all the main signals are blinking red. It might occur right away or a long time from now, as CNN revealed!
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