Over the past year or so, many economists have believed that a recession is just around the corner, based on what they’ve read about the performance of past economic indicators before the recession and what they see as most likely. I have declared that many times. An inevitable recession given the recent similarities to these past relationships.
A rational person can expect a number of “next You may wonder why you have to come across “the corner of
Think of the many disruptive factors that have impacted the world over the last few years. Global pandemics, ground wars in Europe, supply chain disruptions and consequent shifts in economic alliances, aging populations in most developed countries, and sometimes fiscal policy interventions accompanied by huge currencies and huge levels of government debt. . In short, people, businesses and governments are tackling what is arguably the most difficult environment since World War II. Is it any wonder that “traditional” economic indicators/analysis of how the future may unfold look so banal?
When inflation-adjusted GDP fell in the first two quarters of 2022, a huge number of economists and policymakers declared a recession had arrived. In fact, no such thing was true. The onset of a recession is not determined by a single factor, real GDP, but by simultaneous readings of multiple economic statistics. These include real GDP (down in the first half of last year but up about 3% in the second half), non-farm employment levels (up over the last year, and barnburner performance in his January of this year). more than half a year) is included. -1 million new jobs), industrial production (mixed performance, particularly weak end-2022), real wholesale/retail sales (acts much the same as industrial production), real incomes less government transfer payments (modest trend) rising for most of the last year).
Taken together, at no point in 2022 has there been a single month in which all of these economic indicators have fallen.
So where, exactly, will early 2023 and the rest of the year be headed? I am receiving It is currently set at a range of 4.5% to 4.75% to bring down the accelerating inflation rate labeled “temporary” in 2021 to a more acceptable level. In fact, as measured by CPI, inflation has actually fallen since peaking at 9.1% last June. In December 2022, he recorded 6.4% in the “all items” index. However, it should be recognized that this is still well above the Fed’s 2% inflation target. Also note that the Fed does not use CPI data when assessing inflation.
As noted earlier, nonfarm payrolls exploded in January this year, more than economists expected, with a surge of 517,000 new jobs. This comes just two days after the Fed raised its target federal funds rate by a very modest 0.25 percentage points (25 basis points). This was apparently because they believed that past rises (usually quite large) had sufficiently set the stage for better control of inflation. , hence the need for a smaller federal fund rate increase. While this may be true (I personally don’t think so), January’s job gains have almost completely ruled out the possibility of a recession starting in the first half of this year, making yet another “next”. A corner of ‘arrival’ failed.
The Federal Reserve will increase its target federal funds rate by an additional 25 basis points at at least its next two meetings (March and May). Given that they have repeatedly declared themselves fundamentally “data-driven,” what happens next is likely to be a further shift in job growth (which has eased significantly from the solid January figures). I think) and the rate of inflation. As for the latter factor, overall inflation (and ‘core’ levels, excluding food and energy prices) should continue to trend downwards throughout the first half of the year.
If this happens, the Fed may be inclined to make self-congratulatory efforts, but it should refrain from doing so. The improvement in inflation in the first half of the year is largely a function of last year’s rate of increase in price levels, making this year’s year-on-year comparisons much easier. Sadly, the second half of the year could see inflation stabilize and pick up, especially in the final months of the year. And if events generally play out along these lines, year-end inflation (and possibly long-term inflation) could be in the 3% to 4% year-on-year range. Well above the Fed’s 2% target.
Clearly, this is not a particularly optimistic outlook and suggests a potentially volatile environment as the US enters an election year in 2024. On the positive side, it could mean the economy dodges a recession (my personal belief) or enters a very mild recession. Of course, only time will tell which corners to actually turn.
Dr. James E. Newton is Chief Economist for the Delaware County Treasury. The views/opinions expressed herein are those of Dr. Newton and do not necessarily represent the views/opinions of the Delaware County Accounting Office.