1. What is a recession?

It is often understood as a period when economic output contracts for two consecutive quarters. But the Business Cycle Dating Committee of the National Bureau of Economic Research, a group of academics whose determination is considered official in the United States, defines a recession differently: as a “significant decline in economic activity that spreads across the economy as a whole and which lasts more than a year”. some months. “It looks at three criteria – depth, spread and duration – and takes into account factors such as employment, inflation-adjusted spending, industrial production and revenue. The NBER says the extreme conditions revealed by one criterion can compensate for weaker signals from another For example, the recession caused by the 2020 pandemic was widespread and characterized by a sharp drop in economic activity, but it was extremely short and did not last only two months.

2. Could the United States already be in a recession?

For Americans facing decades-high inflation, near-record gas prices and soaring grocery bills, it sure may feel like it, but most economists say the US economy is not currently in recession. Fed Chairman Jerome Powell agreed when asked the same question on July 27. That said, a wealth of recent data has intensified the debate.

3. What do the numbers show?

The government’s signature measure of economic activity – gross domestic product – recorded consecutive quarterly declines in the first half of the year. The decline in the first quarter largely reflected a surge in imports; GDP is supposed to capture domestic production, so the surge in imports has lowered the overall figure. The second quarter, however, showed a more concerning decline. The government’s initial assessment of the second quarter, released on July 28, showed a slowdown in consumer spending as well as declines in business investment, government spending and housing. Inventories also weighed on GDP. While the numbers so far in 2022 fit the recessionary rule of thumb of two consecutive quarters of GDP contraction, that doesn’t mean the US is officially in a recession, as determined by the NBER.

4. Do economists expect a recession to come?

Bloomberg Economics’ model indicates there is a 100% chance of a recession by early 2024. Economists at Deutsche Bank AG, one of the first major banks to forecast a recession, expect to start in mid-2023; Wells Fargo & Co. sees the United States entering a recession in early 2023, and Nomura Holdings Inc. expects a recession even earlier, starting in late 2022.

5. Does this mean a recession is inevitable?

President Joe Biden’s administration insists that a recession is not a foregone conclusion. The Fed’s Powell remained hopeful of a so-called soft landing – a cooling in economic activity that does not lead to a recession – but he acknowledged on June 22 that it will be “very difficult “to achieve this. the labor market remains a beacon of hope in an otherwise clouded economic picture, with employers adding more jobs than expected in June.

6. How much worse could things get?

For the most part, economists generally describe any potential recession ahead as mild or moderate. Even so, all recessions are painful, and even a mild recession would still likely mean hundreds of thousands of Americans losing their jobs. Estimates vary, but the unemployment rate is expected to fall from a nearly five-decade low to around 4% to 6%, well below the 10% seen following the Great Recession and the nearly 15% seen in the start of the pandemic. In terms of duration, economists diverge. One of the reasons why this recession could last longer is that high inflation could prevent the Fed from intervening to support the economy. It should be noted that as difficult as it is to predict when a recession will occur, it is even more difficult to imagine what it would look like.

7. Is the global economy headed for a recession?

The global economy faces a similar picture: high inflation and aggressive central bank action to rein it in. “The outlook has darkened considerably since April,” said Pierre-Olivier Gourinchas, chief economist of the International Monetary Fund, in July. “The world could soon tip to the brink of a global recession, just two years after the last one.” In a report released in early June, World Bank President David Malpass said that even if a global recession were avoided, the combination of high inflation and slow growth – known as stagflation – could persist for several years. In Europe, a large part of the fate of the economy depends on access to Russian gas, although the risks of recession differ according to the country. European Central Bank President Christine Lagarde stressed that a recession is still not the central bank’s base case scenario; some of his colleagues describe the risk as not insignificant, but say any contraction would be temporary. Meanwhile, in China, the world’s second largest economy, the outlook remains uncertain. The economy is showing mixed signs of recovery, strained by strict Covid-19 measures and associated lockdowns, but the government is looking for ways to intervene.

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