U.S. Recession Bets: Still Premature – July 18, 2022

A just-published report updated our view on the U.S. economic outlook, and concluded that: “the probability of a U.S. recession in the coming year is not high, although the odds of a forced Fed error triggering a recession are increasing with every strong inflation print”. The conditions consistent with a recession do not exist, in fact most indicators suggest continued health.

The NBER recession dating committee takes the following indicators into consideration in dating business cycles:

  1. monthly real personal income less transfers.
  2. nonfarm payroll employment.
  3. real personal consumption expenditures.
  4. real wholesale/retail sales.
  5. household survey employment.
  6. industrial production.

Taken together, these indicators do not look recessionary compared to their performance at the beginning of previous recessions. In recent decades, the committee has put the most weight on real personal income less transfers and nonfarm payroll employment, which are still solid. High and sticky inflation may eventually force the Fed et al into pushing monetary conditions into restrictive territory, but we doubt that it will take that step in 2022. Stay tuned.


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