Economic Slowdown Now, Recession Coming in 2023

The comments below are an edited and abridged synopsis of an article by Lance Roberts

Economic slowdown but no recession: That message comes from the latest employment report, service sector data, and the Federal Reserve.

Economic Slowdown Now, Recession Coming in 2023 - BullionBuzz - Nick's Top Six
The global economy is in a synchronized slowdown. Global financial crisis concept.

“We’re not in a recession right now. We do have these two quarters of negative GDP growth. To some extent, a recession is in the eyes of the beholder. With all the job growth in the first half of the year, it’s hard to say there’s a recession. With a flat unemployment rate at 3.6%, it’s hard to say there’s a recession,” said James Bullard, St. Louis Fed president.

Such a statement certainly belies much of the economic consensus that two quarters of negative economic growth constitutes a recession.

Some indicators suggest the economy is in a slowdown, but not yet in a recession. For example, the composite Institute Of Supply Management survey is still in expansionary territory. Since services make up about 80% of the economy, there is support for economic growth. However, the trend is negative and supports an economic slowdown.

Employment remains strong. With the unemployment rate near historic lows, it seems that a recession is not underway. However, low unemployment rates are historically pre-recessionary and will reverse quickly as a recession takes hold.

While neither measure suggests the economy has entered a recession, it does not preclude one from occurring. Many indicators suggest individuals feel as if the economy is in a recession, i.e. the composite consumer sentiment index. Historically, a recessionary environment was present when consumer confidence/expectations fell below 80.

There could be a bump in economic growth due to back-to-school spending in Q3 and holiday shopping in Q4. However, Roberts suspects that, as the Fed continues to aggressively combat inflationary pressures, a recession is likely.

Up for discussion: The Fed’s fight, and driving with the rearview mirror.

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