- The US isn’t in a recession at the moment according to different kinds of data.
- The labor market in the country is still thriving, as seen in monthly nonfarm payroll gains.
- Real personal income has also seen monthly gains again after declining in early 2022.
You can’t go far without hearing someone talking about a recession.
The debate whether the US will see a recession, or even if it’s experiencing one now, is almost everywhere.
“I do think this is a more uncertain and more hotly contested question than perhaps ever in American history,” Julia Pollak, chief economist at ZipRecruiter, previously told Insider in December when asked whether she thinks the US is in a recession and if not yet, whether this will be the case in 2023 or if the US can avoid it.
But robust monthly payroll gains along with other economic data points suggest that the US isn’t in a recession right now, and a plethora of economists and experts agree. Additionally, there’s potential for the US to avoid entering a recession.
The National Bureau of Economic Research’s Business Cycle Dating Committee, the semi-official arbiter of determining when recessions begin and end, hasn’t said that the US is in a recession. However, the debate and concerns about what a recession could look like and if the US will enter one soon is hot.
CEOs and other leaders have talked about a potential recession. Scott Kirby, CEO of United Airlines, told CNBC that there could be a “mild recession induced by the Fed.” David Solomon, CEO of Goldman Sachs, said at The Wall Street Journal’s CEO Council Summit that there’s “a very, very reasonable possibility that we could have a recession of some kind.”
US Treasury Secretary Janet Yellen also talked about a recession for 2023 on 60 Minutes. “There’s a risk of a recession,” Yellen said. “But it certainly isn’t, in my view, something that is necessary to bring inflation down.”
Economists that Insider talked to at the end of 2022 agree that the US isn’t in a recession just yet, so we looked at the data ourselves to see how the economy is doing and when a recession might appear.
First, let’s look at the data
The NBER’s “traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
“The committee’s view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another,” per the site.
NBER considers a wide range of economic indicators when determining a recession, and as will be seen below, most of those continue to show signs of a robust economy. The team of economists doesn’t follow a hard and fast rule for dating downturns, however.
“There is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions,” NBER says about deciding peak and trough dates.
Ken Kim, a senior economist at KPMG, told Insider in a recent email that “several of the NBER’s recession indicators have rolled over and turned noticeably negative since” December.
The industrial production index is one metric that has been falling.
“Industrial production posted sharp losses in November and December,” Kim said in an email about one of the economic indicators that Kim notes NBER follows.
Looking at US payrolls, there has been robust growth. Gains have been strong throughout 2022, even getting back to the pre-pandemic employment level this past summer. The US ended 2022 with another strong month in December, as seen in both the low unemployment rate and monthly nonfarm payroll gains. Based on preliminary data, 223,000 jobs were added in December, more than economists expected.
Monthly payroll growth as reported by businesses and other employers had slowed in 2022 compared to earlier that year. Nevertheless, the labor market doesn’t indicate a recession right now.
“I think if you look at all the data from the labor market, it does not suggest that we are currently in an economic downturn,” Nick Bunker, economic research director at Indeed Hiring Lab, told Insider in 2022. “That, of course, could change.”
Outside of monthly payroll changes, US job openings have been high, with 1.7 openings per unemployed person as of November. Places are still hiring even as some industries like tech lay off workers. The unemployment rate decreased from 3.6% in November to 3.5% in December. The labor force participation rate also increased slightly from November to December. These various labor market figures together highlight a robust labor market.
“The reason we’re not in a recession is that the labor market still is performing very well in the US economy,” Kim told Insider in December. “So people are still finding jobs and getting a paycheck and spending it on goods and services.”
Real personal income excluding payments from the government has been increasing, with six straight months of gains after falling earlier in 2022.
Real personal consumption expenditures began declining in November and December, after showing strong growth earlier in the year, showing consumers may not be spending as much now.
With about two-thirds of GDP being consumer spending, Pollak said in December “it’s hard to see a recession” because of strong consumption and real income growth.
“Consumers lost momentum in the final months of 2022,” Kim said in an email. “Real PCE fell 0.3% in December and along with November and October being revised lower, this sets the stage for even weaker spending at the start of 2023.”
But strong consumer spending can be seen in retail sales. A measure of retail trade and food services sales was 6.0% higher in December than a year ago without adjusting for inflation. Looking at inflation-adjusted figures, sales in December held steady since January 2022 and below sales in December 2021.
“Gains in employment, gains in industrial production, gains in income levels, strong nominal sales figures — none of that stuff sounds particularly recessionary to me,” Jack Manley, a global market strategist at JPMorgan Asset Management, previously told Insider.
Manley did note some drags on growth, including the housing market that has slowed and saying “net exports continuing to narrow.”
“Some of the structural drags on the economy have worsened recently: the housing market, for example, continues to soften on the back of higher mortgage rates, further depressing construction figures; and business and consumer spending are decelerating on tighter financial conditions,” Manley said in a recent statement to Insider.
Additionally, inflation as measured by both the Consumer Price Index and the Personal Consumption Expenditures Price Index show cooling based on year-over-year changes. And the advance estimate for the fourth quarter of 2022 of gross domestic product shows the US economy grew again in the last quarter of the year, although at a lower annualized growth rate than the third quarter. That means the US saw two quarters of growth and two quarters of contraction in 2022.
Amid cooling yet still-high inflation, wages are simmering down, with the Employment Cost Index rising 1.0% in the fourth quarter of 2022, down from 1.2% in the third quarter and a recent high of 1.4% in the first quarter of 2022.
Here’s what experts are saying about a recession in 2023
Some Wall Street experts and economists think the US could avoid a recession this year, and that even if one comes, it will likely not be as severe as the downturns after the 2008 financial crisis and the early Covid pandemic.
Goldman Sachs Research suggests a chance that the US just “narrowly” avoids a recession. And according to JPMorgan Asset Management, a “near-term recession is too close to call” although the report states if there’s a recession in 2023, it likely will be mild. The report adds “lower inflation and slower growth over the next few years seem very likely.”
As Insider’s Brian Evans reported, economists at Bank of America think there will be a mild recession too.
“Following the Fed’s recent 50bps rate hike, our BofA economists remain cautious on the US economy, and continue to expect a mild recession starting in 1Q23 with negative US GDP for 2023,” a Bank of America note said.
Fitch also thinks a recession could happen some time next year, although later than what Bank of America economists said.
“Fitch expects the U.S. economy to enter genuine recession territory — albeit relatively mild by historical standards — in 2Q23,” Olu Sonola, head of US regional economics at Fitch Ratings, said in a statement.
Kim said KPMG Economics thinks there will be a mild recession with unemployment hitting 5.3%, an updated forecast from 5.5%, well above December’s 3.5% but far below the near-15% unemployment in the Covid recession and 10% peak after the 2008 financial crisis.
And a mild recession may also be brief.
“Using the Global Financial Crisis as a benchmark, that was a nasty six quarter recession in length, a year and a half, which is awfully long,” Kim said. “So we’re not looking for that type of severe recession.”
While some think a recession is on the horizon, there’s a chance that the US may not enter one at all. Moody’s Analytics chief economist Mark Zandi thinks the US can avoid a recession.
“I don’t think anyone knows whether we’re going to have a recession or not,” Fed Chair Jerome Powell said. “And if we do, whether it’s going to be a deep one or not, it’s just, it’s not knowable.”
Bunker, who thinks we’re not in a recession, doesn’t have a forecast as to when a recession could happen. He is watching labor market data closely.
“I think we would need to see a significant deterioration in the labor market for me to think we’re in a recession, and we have not seen any significant deterioration yet,” Bunker said.
“The enormous amount of excess labor demand in the economy does provide the Fed with a path to ‘thread the needle’: job openings can in theory be crushed and wage growth wrangled in without a commensurate surge in the unemployment rate, ‘fixing’ the inflation problem without a big hit to growth,” Manley said in a statement to Insider.
“In addition, considering that there still are no obvious imbalances in the US economy, any recession that does materialize is likely to be reasonably mild,” Manley added.
“It’s hard to know whether the economy is stalling or simply returning to a more sustainable pace,” Pollak commented in January.
However, Pollak laid out “three reasons to be optimistic.” This includes inflation slowing “meaningfully”; “household and business balance sheets are in good shape”; and “The Fed’s course isn’t etched in stone.”
“It will be flexible and data-driven, and can take steps to avoid a recession should the risk grow,” Pollak said about the Fed.
This article will be regularly updated with the latest economic data and recession forecasts.