DANIEL VAUGHAN: Economists say recession is coming

After back-to-back quarters of negative growth, the White House and its media enablers told everyone that the United States is not in a recession. They said that despite everyone knowing that two repeat quarters of negative growth is, at minimum, a technical recession. More evidence is pouring in that we’re either in a recession or headed into one. The signs are undeniable.

The Wall Street Journal surveys around 70 economists quarterly. The goal of the survey is to “better understand the direction of the U.S. economy by publishing consensus forecasts from a panel of academic, business and financial economists.”

For most of 2022, this group of economists has warned of weakening U.S. growth. In April 2022, these economists said that economic data showed that the odds of a recession had increased from 13% in 2021 to 28% in April. By June 2022, that same survey of economists increased their odds of recession to 44%. And in July, recession odds had risen to 49% — a coin flip.

Economists see a recession now.

The latest survey has shown a massive increase in recession odds. Economists now warn there’s a 63% chance of a recession in the next 12 months.

According to the WSJ, “Forecasters have ratcheted up their expectations for a recession because they increasingly doubt the Fed can keep raising rates to cool inflation without inducing higher unemployment and an economic downturn. Some 58.9% of economists said they think the Fed will raise interest rates too much and cause unnecessary economic weakness, up from 45.6% in July.”

Looking ahead to 2023, the economists surveyed said, “GDP will contract at a 0.2% annual rate in the first quarter of 2023 and shrink 0.1% in the second quarter.” Additionally, “Employers are expected to respond to lower growth and weaker profits by cutting jobs in the second and third quarters. Economists believe that nonfarm payrolls will decline by 34,000 a month on average in the second quarter and 38,000 in the third quarter.”

What’s notable here is not just the shift in projections from economists but the pace at which their outlooks are moving. In past surveys during the 2007-2008 Great Financial Crisis and the 2020 COVID-19 pandemic recession, when the Wall Street Journal’s survey shot north of a prediction of 50% odds of a recession in the next 12 months, that signaled a recession was already here.

We’re already in a recession.

It is unknown whether that still holds, but I suspect it is true. In June, I laid down my marker that the U.S. was already in a recession. “My best-educated guess is that the NBER will eventually define the peak of our economic expansion post-COVID, to be somewhere towards the end of 2021.

A more specific guess is that they’ll choose November 2021 as the peak, with things dropping from there. That’s when the Fed started getting sober about inflation and announcing a push toward rate hikes.”

Remember, recession calls get declared by the National Bureau of Economic Research (NBER), and those calls are always backdated. If more than 60% of economists already believe a recession will occur now or in the next 12 months, odds are the NBER will backdate a recession into this current time. The NBER did not declare the 2008 recession to be active until December 2008, after we’d already been in a recession since 2007, according to their dating.

When a recession call comes, it will start in the past. Contrary to what the White House and media say, job growth is a factor in a recession call, not the only factor. We know negative economic growth started in the first quarter of 2021. WSJ’s economists think a recession is coming, and they’re not just looking at job growth.

Evidence for a recession is everywhere.

It’s not just the United States, either. Recession risks are rising across the world. “The worst is yet to come,” said International Monetary Fund Managing Director Kristalina Georgieva. “Across many economies, recession risks are rising.” In its reports, “Economies representing more than a third of global output will contract next year, while the world’s three largest economies—the U.S., the European Union and China—will essentially stall, the IMF forecasts.”

The best admission of this reality is President Joe Biden saying that a recession will be “mild.” A quote that the White House communications team immediately “clarified.” It doesn’t matter what Biden or the Federal Reserve says on this point because they’re both likely wrong:

Any recession would likely put millions of people out of work, robbing Biden of one of his key metrics for his own economic performance: job gains. Fed policy makers see joblessness rising to 4.4% at the end of next year, according to their median forecast released last month.

Like Biden, they may prove too optimistic. Fed officials have failed to correctly predict how high joblessness would rise during, or in the wake of, almost every recession over the past 50 years.

When you put all of this together, we’re either in a recession now or one is on the way. The White House will be the last to admit this reality, and by the time they do, they’ll start claiming the recession is already over.

Meanwhile, real Americans suffer from a terrible economy and an uncaring President. The White House cares about narratives and optics but does not produce policies that change America’s direction.

The warning signs are there. The recession is here.