Our Latest Views On Recession

What’s in a name? Sometimes, a lot. Economists often avoid using the term “recession,” preferring milder variants like “downturn,” “reset,” or “correction.” But the use of alternative terms doesn’t make the news any sweeter.

We have lately been inundated with questions and speculation about an imminent recession, or even one that is already underway. The combination of high prices, rising interest rates and falling markets are leaving many with a sinking feeling. But in our view, the expansion is still afloat and is likely to keep its head above the water line. This article will attempt to explain our point of view.

Recessions are informally understood to mean two quarters of economic contraction. U.S. real gross domestic product (GDP) fell during the first quarter of the year, and data for the second quarter suggest the possibility of a repeat performance.

But in the U.S., a group within the National Bureau of Economic Research (NBER) makes the official determination of when business cycles begin and end. The NBER evaluation is more nuanced, defining a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Following are the indicators they focus on most intently during their deliberations, along with our thoughts on where things currently stand.

  • Employment: By nearly all measures, the labor market remains strong. Payrolls have grown continually since January 2021, and job openings stand at a level nearly double the number of unemployed workers. Labor force participation was slow to recover last year, but has improved in 2022, albeit unevenly. Some recent metrics, like job openings and managers’ hiring intentions, suggest this hot market may have started to cool, but only slightly.

Employment is especially important to track, as every recession has featured substantial job losses. Each Thursday, the Department of Labor reports on unemployment claims. Initial claims have moved up slightly from record lows seen earlier this year, but are still holding at low levels that were typical of the latter years of the prior growth cycle. The monthly unemployment rate will be crucial to judge a downturn: The Sahm Rule teaches us that a gain of a half-point in the three-month moving average unemployment rate is a highly reliable recession signal.