Many Experts, Economists and Analysts are fearing that whether a dreadful recession on the card for the U.S. economy. This website has previously explored the topic in an article titled “Will US Avoid Recession” (also see: Why US May Skirt Recession In 2023?). In this article, we will delve deeper into the question of whether the United States is genuinely on the brink of facing a dreadful recession or not. Let’s begin our analysis.”
What does indicators say?
According to the Federal Reserve’s Monetary Policy Statement, the recent Indicators show that economic activity has been expanding at a solid pace. It stated that, in its own words, “Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.”
From the federal’s statement it is clear that though economic activity is at a solid pace the Inflation is still on a higher side. The Gross Domestic Product (GDP) data which depicts the economic activity shows the same for the first two quarters.
Gross Domestic Product (GDP):
On September 28, 2023 (two week before) U.S. Bureau of Economic Analysis (BEA), released the Second quarter GDP data (Third Estimate). The data shows that GDP has increased at an annual rate of 2.1 percent (0.5 percent at a quarterly rate) in the second quarter of 2023.
BEA has also revised its first Quarter GDP of 2023, to 2.2 percent. BEA stated that the increase in GDP is due to the increase in business investment (esp. non-residential fixed investment), consumer spending, state and local government spending. In terms of trade both Exports as well as imports have declined in this quarters. The following graph depicts the contributions to Percent change in Real GDP for Second Quarter 2023:
Inflation:
Yesterday (i.e. 12th October, 2023), BEA released inflation data for the month of September, 2023. The inflation data shows that All Urban Consumers (CPI-U) rose 0.4 percent in September (seasonally adjusted). It is to be noted that Inflation has also increased 0.6 percent in August.
Inflation of the all item index has increased 3.7 percent (before seasonal adjustment). The 12 month increase is same as the 12 month increase ending in August, 2023. The 12 month percent change is given in the table below along with the graph depiction:
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep |
| 2022 | 7.6 | 8.0 | 8.5 | 8.2 | 8.5 | 8.9 | 8.4 | 8.2 | 8.2 |
| 2023 | 6.3 | 6.0 | 5.0 | 5.0 | 4.1 | 3.1 | 3.3 | 3.7 | 3.7 |
Source for Table and Graph: U.S. Bureau of Economic Analysis, Inflation Data.
Interest Rates:
The Fed has hiked its interest rates from 5.25 to 5.50% (i.e. from 5-1/4 to 5-1/2 percent), as the inflation has not come down to the target inflation rate of 2 percent. However, the Federal Reserve in its MPC Statement stated that the Banking System is sound and resilient. It also stated that tighter credit conditions for households and businesses entirely depends on hiring, inflation and economic activity. The Federal Reserve Committee are vigilant towards inflation risks.
Employment Situation:
On 6th September, 2023, U.S. Bureau of Labor Statistics released the data on Employment Situation. It showed that the unemployment remained unchanged at 3.8 percent. Total non-farm payroll employment rose by 336,000 in September, BLS reported. The table and Graph Depicts Civilian unemployment rate, seasonally adjusted:
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep |
| 2022 | 4.0 | 3.8 | 3.6 | 3.6 | 3.6 | 3.6 | 3.5 | 3.7 | 3.5 |
| 2023 | 3.4 | 3.6 | 3.5 | 3.4 | 3.7 | 3.6 | 3.5 | 3.8 | 3.8 |
Source for Table and Graph: U.S. Bureau of Labor Statistics
The numbers and data shown are normal and there doesn’t seem to be any problem of recession on the card. The Interest rates are kept high to tighten/control inflation, GDP is showing good signs along with job data is also not bad. All are perfect in place – so hopefully US May Skirt Recession In 2023. No, as we said earlier “All the Glitters are not Gold” we can’t just get carried away by these numbers and data’s. Before going to our perspective on the Recession let us see different views from different experts. Let us see why it is so
Avoidance Not Possible?
Mohamed El-Erian (President of Queens’ College, Cambridge University) in his column in financial times stated that the US may no longer no longer avoid a recession. He stated the Yield on the Benchmark US 10-year bond has increased marginally by 0.5 percent to around 4.8 percent; this is due to shifts in the entire interest rate structure. He also expressed that the cost of a 30-year mortgage is about to touch 8 percent and making already expensive home purchases even less affordable. He also indicated about international spillover effects, Oil Prices and Interest Rate worries. (For Full details read the article from FT – link is highlighted in the title of the article).
Bloomberg carried an Article titled that Why a US Recession Is Still Likely — and Coming Soon. It provided six reason for both why recession is likely as well as in defence why it is not. The Six reasons for recession to happen are Auto Strike, Oil Spike, Students Bill, Yield Curve, Global Slump and Government Shutdown. (For Full details read the article from Bloomberg – link is highlighted in the title of the article).
Is Soft landing Possible?
Many Economists and Policymakers believe that Soft landing is possible and the US may avoid a recession. Few experts (esp. policymakers) states that it is possible that there may be “Growth Recession” (i.e. where the economy will grow at a slow phase but with few implications in the job market)
Since, Federal Reserve is more vigilant to control Inflation the Interest rate hike is not going to stop – at least before it touches around or at 6 per cent (as we have already stated earlier). Due to which there will be caution in investments and tight credit conditions. The expectation of one more hike is very high from not only experts, but also from investors, consumers and bankers. These expectations may lead to avoidance of recession and lead to a soft landing of the economy.
The following table shows the interest rate hikes since 2022.
| FOMC Meeting Date | Rate Change (bps) | Federal Funds Rate |
| Sept 20, 2023 | +0 | 5.25% to 5.50% |
| July 26, 2023 | +25 | 5.25% to 5.50% |
| June 14, 2023 | – | Status Quo – No Change |
| May 3, 2023 | +25 | 5.00% to 5.25% |
| March 22, 2023 | +25 | 4.75% to 5.00% |
| Feb 1, 2023 | +25 | 4.50% to 4.75% |
| Dec 14, 2022 | +50 | 4.25% to 4.50% |
| Nov 2, 2022 | +75 | 3.75% to 4.00% |
| Sept 21, 2022 | +75 | 3.00% to 3.25% |
| July 27, 2022 | +75 | 2.25% to 2.50% |
| June 15, 2022 | +75 | 1.50% to 1.75% |
| May 5, 2022 | +50 | 0.75% to 1.00% |
| March 16, 2022 | +25 | 0.25% to 0.50% |
| January 26, 2022 | 0 to 0.25% |
Source: Federal Reserve Website
Conclusion – Our Perspective:
Our perspective is that the US will face recession but as we stated it will have lesser impact and it will not be dreadful. However, the present prevailing Global War conditions are one way saviour as well as bane for the US economy. It is saviour as the productivity will be taken care of and curse as it has to go through the heat, as always Global Economy looks towards the US economy. A Federal Reserve Hike is imminent – which will be one of the key players for the US economy to have a lesser impact of recession. The prevailing global economic conditions and Federal Reserve policies will play a crucial role in determining the nation’s economic future. Though the U.S. economy currently shows positive indicators, the possibility of a recession still lingers. Therefore, it is essential to be more cautious than complacent.
FAQs
Is the U.S. economy showing signs of a recession?
Based on current indicators, the U.S. economy does not appear to be heading toward a recession. Economic activity and job markets are robust, but inflation remains a concern.
Why are interest rates being raised?
The Federal Reserve is raising interest rates to combat rising inflation, as it has not yet reached the target rate of 2 percent.
What factors could lead to a recession?
Factors such as rising bond yields, oil prices, student debt, and global economic issues could contribute to a recession, as suggested by various experts.
Is a “Growth Recession” possible?
Some experts believe the U.S. might experience a “Growth Recession,” characterized by slow economic growth with minimal job market implications, due to the Federal Reserve’s commitment to controlling inflation
What are the key indicators that suggest the U.S. may be heading towards a recession?
Key indicators include economic activity, inflation levels, GDP growth, interest rate changes, and the employment situation. These factors collectively provide insights into the economic health of the U.S.
What are the potential consequences of a U.S. recession on a global scale?
A U.S. recession could have international spillover effects, impacting global financial markets, trade, and economic stability. It’s closely watched because of its interconnectedness with the global economy.