Recession: Is it Official?! What’s Going On With The Economy!

Recession or not a recession that is the Question That’s because last week the u.s Recorded its second consecutive quarter Of negative economic growth And as expected there was a big old Hoo-ha about technical definitions and The moving of goal posts But whatever people want to call this Economic cycle we’re in it’s not a Pretty picture and things are likely to Get worse before they get better In this video i’m going to analyze the Current economic environment and tell You exactly what it means for the Markets now and over the next three Months this is a video you can’t afford To miss [Music] Last week statistics revealed that u.s Gdp fell by 0.9 percent which was Notably worse than the consensus Estimate of 0.3 percent growth it’s Still a smaller contraction than the Minus 1.6 percent we saw for the first Quarter but a contraction nonetheless This is something i foresaw in our Previous video on the upcoming recession Which i will leave a link to below So that’s it right the us is now Officially in a recession and we can Start calling it as such well Not so fast that’s because the question Of whether this is a recession or not

Has become a hot button topic and Unfortunately extremely politicized You see a recession can be generally Agreed to have occurred when a country Has experienced two negative quarters of Economic growth this has been an Informal and objective measure which Many have taken as a given however Whether a recession is formally declared In the u.s at least has to be determined By a group of economists who sit within The national bureau of economic research Or nber A panel of eight economists who make up The intriguingly titled business cycle Dating committee are the individuals who Will officially state that the u.s is in A recession It’s been this way for decades and the Panel is non-partisan it was actually Established back in 1978 during reagan’s Presidency Yet the reason why this has become so Controversial is because it wasn’t in The past Generally a declared recession by the Dating committee would coincidentally Coincide with two periods of consecutive Negative quarterly growth This means that everyone has come to Accept the two-quarter schtick as an Official definition in actual fact the Dating committee looks at a number of Other factors including the gross

National income job growth and a raft of Other economic indicators they also Examine sector-specific numbers to see How robust sales are within these Sectors And according to the nber president the Committee does not think we are in a Recession But what the nber says now may be viewed By many as political that’s because in The lead-up to the release of the q2 Numbers the current administration had Been pushing the official definition Quite aggressively This led many to think that they were Moving the goal posts It also doesn’t help that many in the Mainstream media were quite active in Their assertions of what constitutes a Recession while the ever trustee world Economic forum also decided to weigh in On the discussion heck even wikipedia’s Long-standing definition of recession Was changed in the lead-up to the Release of the figures which sure riled Up a lot of people These actions raised the suspicions of An already skeptical public now i don’t Want to get into the politics of this I’m just interested in the facts and Stats as i said in that previous video i Thought that the us was headed for a Recession and i think that it is in one Now

But this will be a recession unlike any Other and that is for a few reasons Firstly and perhaps most tellingly this Recession that the u.s appears to be in Is one that has near full employment the Unemployment rate in the u.s is now at 3.6 percent a 50-year low Moreover jobs are being added at a Record pace For example in june the u.s added 400 000 jobs and on top of that job Vacancies are at historical highs and They’re in the position where there are Two vacancies for every unemployed Person It’s not just the volume of jobs though It’s also wage growth which remains Elevated now it’s all of these factors That led fed chairman jerome powell to Claim that he doesn’t think that the us Is in recession and what made him Comfortable enough to increase those Interest rates by another record 75 Basis points It’s not just powell either secretary Yellen also said that she doesn’t think That this is a recession thanks to the Strong jobs growth although she did Admit that the economy was slowing So What’s going on Well it’s that great resignation you’ve Been hearing about Essentially the labor force

Participation rate is still way below Pre-pandemic levels hovering at about 62 Percent of those levels in fact Now a great deal of this was just people Who were close to retirement and who Decided that they’d take it early There were also large rates of Resignation in sectors where people who Were let go because of covert shutdowns Decided not to return Whether a lot of these people are likely To return to the jobs that saw them as Dispensable or to the workforce in General Is anybody’s guess It’s perhaps less likely for those who Retired early either way this will be a Job full recession and this is perhaps The reason why the fed has felt so Comfortable increasing those interest Rates Its dual mandate is full employment and Stable prices it has the former but is Seriously off the mark on the latter Now beyond the employment data the us Also saw some really good consumer Spending numbers in june They rose by 1.1 percent which beat Analysts expectations Not only that but the consumer spending Numbers were revised up in may from 0.2 Percent to 0.3 percent Increasing consumer spending is also not Something that you would expect to see

In a recession So all rosie right this is nothing but a Technicality and we’ll be back to growth In q3 well Not so fast You see even though there’s strong jobs Data and job growth appears to be robust That does not mean things will remain That way Job cuts tend to take time to make Themselves felt as companies make Adjustments in the wake of bad results This is already starting to happen in Certain parts of the us economy For example you’ll have seen the wave of Layoffs in the tech sector over the past Two months Companies like shopify tesla robinhood Microsoft and amazon have cut employees While companies like google and meta are Freezing hiring This is all on the back of some pretty Bad earnings results for these companies Now tech is usually more cyclical than Other parts of the economy but it’s a Good bellwether of what’s coming I’ll leave a link to this interview with Kathy wood from arc invest where she Talks about these tech earnings Basically she explains that retailers Are seeing unusually high levels of Inventories leading them to cut back on Their ad spend We can’t continue seeing an environment

With jobs being created every month when Companies aren’t making money it’s a law Of financial gravity Some economists think that the job cuts Are coming soon and these include the Likes of larry summers he’s an Ex-economic advisor ex-treasury Secretary and ex-harvard president and He’s been a staunch critic of monetary And fiscal policy over the past two Years In a recent interview with bloomberg he Explained where he thinks the Unemployment rate is heading quote Just to get to a neutral posture with Respect to inflation we’re going to take Unemployment up towards five percent However even if the job market is able To somehow hold up there’s a whole host Of other data that is also less than Rosy For example industrial production is not Looking too good in june it fell by 0.2 Percent the first time it had fallen This year Analysts were expecting a moderate gain Of 0.1 percent so this was a miss Manufacturing is nothing in comparison To consumer spending though and although Consumer spending did hold up in june of This year consumer confidence is not Looking as strong That’s because in july the consumer Confidence index of the conference board

Fell to its lowest level since february Of 2021 may i remind you that this was a Time when covid was still raging and Restrictions were still being imposed It’s quite clear that those high levels Of inflation have been crushing Confidence i should also point out that Confidence is a leading indicator for Spending so if it was down in july one Can only assume that the actual spending Numbers may also be a disappointment Some of the country’s biggest retailers Including walmart and best buy warned Last week that they were now starting to See a pullback in their shopper’s Spending habits so That’s consumer confidence now one final Thing to consider is that the impact of The fed’s rate hikes will take time to Be properly felt these effects are not Instantaneous and bank interest rates or Mortgage rates are now beginning their Upward jump People are going to learn very quickly That they will have to cut back on all Discretionary spending lest they end up Wrecked by their bills Now something else that people tend to Look at in order to get a sense of the Market’s view of a recession is the Yield curve Quite simply when shorter term interest Rates are higher than longer-term Interest rates this is considered to be

A yield curve inversion In the case of the u.s yield curve That’s the 10-year treasury rate minus The rate on the two-year you can see What a normal yield curve looks like Here And here you can see an inverted yield Curve Anywho the u.s yield curve is currently Inverted and the spread between the 2 And 10 year is now actually at its Highest level for over 20 years i’ll Also point out that the yield curve Inverted a few months before the Recessions in both 2000 And 2007. Now i tend to want to believe that those Who have money on the table Institutional investors are better at Determining whether the us is in a Recession than the eight lifetime Economists at the nber but even if we Are to take the nber’s word as gospel It’s worth noting that they sometimes Only declare a recession long after it Has started or indeed ended I’ll link to this wall street journal Article below which talks about it in Much greater detail But if you take a look at these graphs Over here the dating committee is Usually quite late when it comes to Announcing recessions in some cases it Can be over six months after the event

What this means is that even if they’re Not going to declare that a recession Began in q2 they could do so in a few Months time I can only assume that this is done Because the data that they use to make That call may not yet be available this Begs the question of whether the work of The nber is more record-keeping than Useful policy guidance but that’s Neither here nor there So let’s assume that the us is now Currently in a recession and that the Nber will be declaring it as such in a Few months what does that mean for the Economy and the markets going forward Well if job growth really does start to Slow and we see unemployment start to Creep up then this could change the Whole dynamic over at the fed Don’t forget that the dual mandate is Stable prices and full employment If the latter measure starts to flash Signs of trouble then jerome and his Crew are going to have to reassess how Aggressively they raise those interest Rates The market is of the view that interest Rates will peak in january 2023 That’s according to the implied fed Funds rate given by interest rate Futures Moreover this pullback in rates Expectations is also in line with

Decreases in inflation expectations You can get a sense of those by taking a Look at break-even inflation rates over Here If these estimates are indeed true and Inflation has peaked there is the hope That the fed could start easing off the Breaks later in the year This could help to alleviate those job Market concerns and potentially pull the Us out of this quasi recession it seems To be in This will also be great for all risk Assets including stocks and crypto as Investors move out of bonds and cash of Course this is the optimistic outcome If inflation remains stubbornly high Then the fed will be between a rock and A hard place keep raising rates and Further tank the economy or let Inflation ride as you take your foot off The brake That’s also assuming that the fed even Has that much control over inflation at This point it’s quite clear that recent Price pressures have been as a result of Supply side factors such as energy costs Imports food etc i talked about this in Much greater detail in my video about Supply chain issues which i’ll leave Linked to below for you There are additional supply side risks Out there that could present themselves In the coming months too for example it

Seems that the latest geopolitical Hotbed appears to be taiwan China is not happy with u.s policy in The region and has been aggressively Posturing over the past few weeks Did you know that taiwan produces 63 Percent of all Global semiconductor supply can you Imagine what supply chain disruptions Caused by a chinese invasion would look Like for the electronics industry i Shudder to think Such fears almost certainly informed the Us’s decision to pass a 280 billion Dollar bill last week aimed at Strengthening its native semiconductor Industry The point is that we are in a precarious Economic position and things could go Either way On the upside the fed could actually Achieve that so far elusive soft landing And prevent large-scale job losses as Inflation is rained in that would be Great However there’s also the equally likely Scenario where we get additional Inflation shocks which coincide with Mass job losses that my friends is Called stagflation and it’s an economic Position no one wants to be in I think it’s safe to say that the fed Officials are going to have some tough Decisions to make when they come back

From their summer holidays i hope they Enjoy them while they can Okay so time for a few of my closing Thoughts it seems as if the recession Question has become a political football That’s been chucked around all over the Shop This has unfortunately led to a whole Host of finger pointing which has not Helped address the broader question how Do we deal with it Whether the us nber decides to Officially label this as a recession or Not it’s quite clear that we are in for Some stormy economic weather I don’t need the weatherman to tell me That it’s raining when i’m already Regretting coming out without an Umbrella Yes it’s true that this is unlike any Previous recession it’s a job full Recession where people still seem to be Spending on consumer goods That said things take time to work Through the system Job cuts generally lag business Sentiment and if the recent tech cuts Are anything to go by we could be Heading for a squeeze There are also a host of other data that Show the economic picture is anything But rosy consumer confidence industrial Production the inverted yield curve All of these are canaries in the

Economic coal mine The next two months will be crucial for The us economy the most important things To be watching are the inflation rate And initial jobless claims These are where the fed is laser focused And will determine the policy that it Takes when officials reconvene in September I happen to think that the fed will do Whatever it takes to rein in inflation If that means mass unemployment So be it The hawks are on the warpath to bring Those prices down However Inflation can be contained without the Job loss side effects an outcome we all Want to see Let’s just hope that we don’t have Another exogenous supply shock that Takes us closer to an inflationary cliff And that’s pretty much it for today Folks but i love to get some of your Feedback though do you think the nber Needs to get with the program and how do You think we could avoid mass job losses In this recession let me know in the Comments below In the description you can also find Links to all the other places that you Can follow me twitter telegram instagram And tiktok if you want a preview of what Videos are about to be released as well

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