Shortage New

Is or Isn’t the U.S. in a Recession?

SOURCE: Michael Knight, TTI MarketEye


As a matter of evolution, we are highly sensitized to signs of trouble over all other signals in our environment. And with the US 2nd quarter US GDP report we got what appears to be a flashing red light when the reported headline number declined for the second quarter in a row signaling, in classical terms, that we are in a recession. Or are we? Is contracting GDP a true harbinger of trouble these days?

I must admit, I was surprised by the news. In early May I got up in front of over a thousand people to deliver a talk on the outlook for the macroeconomy and the ramifications for my industry, which is electronic components. Given the strength in our economy and the actual factors that triggered the q-q decline in GDP for Q1 (rising oil prices, deliberate reduction in government spending, supply chain shortages, the reaction to Omicron, and declining exports due to a rapidly strengthening dollar), I was sure Q2 would be an up quarter. And I wasn’t alone in that conclusion.

In fact, as recently as the week before the Q2 numbers were released economists and government econ officials like Yelin, Lagarde and Powell were calling for a better Q2 result. And in the weeks after the July 28 GDP report, a growing number of economists have been saying we are actually not in a recession. What’s going on? Shouldn’t this be a crystal-clear sign of trouble?

There is no doubt that our economy is cooling off. Cooling off after running hot for more than a year is natural and, one could argue, necessary… and in fact, that is exactly what the Fed is doing with their policies… cooling things off to reverse the inflation that supply chain issues and a strong economic environment are causing. But despite that, more than half a million jobs were added in July alone and the unemployment rate remains at its lowest level since 1969. And gas prices have receded contributing to a bounce in consumer sentiment. The chief economist at Moody’s, Mark Zandi, said last week that “This is not a recession. It’s not even in the same universe as a recession.” He went on to predict that the GDP declines will get revised away before the Q3 is over.

So where is the disconnect? It starts with the fact that the GDP metric was crafted in the 1930s and hard-coded by Keynes during WWII as a measure of a country’s economic performance. It only counts goods flowing through official, organized markets and as such doesn’t capture much of the economic value that technology creates today, such as the benefit of free apps on our devices (GDP assigns zero value to goods with zero price), nor does it count home-based businesses or the gig economy where an estimated 30% to 50% of those who work make their living. And things like natural disasters increase GDP during the period of rebuilding that follows, so a negative for health and well-being that is counted as a positive for the economy.

Consensus amongst economists is that GDP is anachronistic for many reasons, including the fact that it doesn’t consider income distribution across a society. A more modern metric that accurately reflects prosperity for all is needed but when it comes to what that looks like, consensus breaks down. The bottom line is that like so many other things in the modern world, an economic recession isn’t the alarm bell that it once was. It is helpful to have an understanding of that in order to not overact when numbers come out each quarter.

x Brown

About The Author

EMS Now Mycronic Iris D vision technology x
winsource mpu
Cleveland opening banner px
Excesstock EMS now