new york
CNN
—
Many CEOs, investors, and economists predicted that 2023 would be the year that a recession hits the American economy.
It was thought that the US economy would grind to a halt as the Federal Reserve effectively put the brakes on inflation. Businesses will lay off workers, and Americans fed up with inflation will cut spending.
However, the basis for a 2023 U.S. recession is crumbling for a simple reason. This is because the US job market is too strong.
Hiring unexpectedly accelerated again last month, with employers adding an impressive 339,000 jobs in May. This is not only higher than major forecasters expected, but also more jobs than the U.S. economy added in a single month in 2019, which was a very strong year for the job market.
“Despite the banking crisis, the interest rate hikes, the debt ceiling, despite all the challenges, this economy has been incredibly resilient,” Mark Zandi, chief economist at Moody's Analytics, said in a phone interview Friday. he said in a phone interview with CNN.
Zandi is increasingly confident that 2023 is not the year when a recession begins.
“For this year, given these employment numbers, it seems unlikely that we will have a recession. The possibility of a recession this year is becoming less and less likely,” Zandi said. “Many economists who have been advocating for a recession are now in the uncomfortable position of pushing back the start date.”
That's possible, but conditions in the economy, particularly the job market, would have to deteriorate rapidly for a recession to begin this year.
“Time is running out for a 2023 recession,” Justin Wolfers, an economics professor at the University of Michigan, told CNN. “We've never had a recession when the labor market was this hot. In fact, it's ridiculous to use the r-word when we're creating jobs at this rate.”
Not only did non-farm payrolls increase by 339,000 people in May, the government also significantly revised upward the employment growth figures for the previous two months. Currently, the Bureau of Labor Statistics reports that employment rose by 217,000 in March and 294,000 in April.
This is miles away from the gloomy predictions announced not too long ago. Bank of America warned last fall that labor costs would begin to decline in early 2023, translating to about 175,000 monthly job losses in the first quarter and then throughout the year. I warned you that something would happen.
In fact, some companies, particularly in the technology and media industries, are cutting jobs.
Challenger Gray & Christmas said the number of announced job cuts has quadrupled so far this year. But economic indicators show that many people who are laid off are quickly rehired.
Friday's jobs report showed some conflicting signs, particularly in the household survey, which economists don't pay much attention to because it tends to be noisy.
According to the Household Income and Expenditure Survey, the unemployment rate, which had been at a 53-year low, rose 0.3 points to the highest level since April 2020, amid a sharp decline in employment.
However, Wolfers noted that the three-month rolling average of the unemployment rate remains extremely low at 3.5%. He said the job market is “really, really good” and said the latest report further challenges the belief held by many Americans that the U.S. economy is already in recession. (In a May CNN poll, 76% of respondents said the economy was in bad shape).
“We're not in a recession. For the past two years, people have been saying we're in a recession. They've been wrong every day,” Wolfers said. “Jobs has increased gangbusters. The data is very clear on this. There is no recession.”
Of course, it's possible that something will happen in the coming months that changes that narrative. There is also a significant risk of recession in the medium term, and there is growing evidence that consumers are experiencing real economic pain after two years of high inflation.
Dollar General lowered its outlook for this year, warning that customers are being forced to “increase their reliance on food banks, savings and credit cards.” Macy's blamed slowing customer demand for lowering its outlook. Federal Reserve researchers have found that auto loan delinquencies have increased above pre-COVID-19 levels.
Another problem is that the Fed's efforts to fight inflation have been slow, hurting the economy. This means the effects of the most aggressive rate hike in 40 years may not be fully felt yet. This increases the risk that the Fed will overreach, or already has.
Zandi believes there is a one-in-three chance of a recession this year, rising to an “uncomfortably high” 50/50 chance by 2024.
Still, there is nothing in the latest jobs report to suggest a continuing or imminent recession.
“As long as the economy continues to create more than 200,000 jobs per month, it will not fall into recession,” RSM chief economist Joe Brusuelas said in the report.
Morgan Stanley appears to agree, telling clients that May's jobs report continues to point to a “soft landing for the economy” (Fed's term for raising interest rates without causing a recession). Ta.
Wolfers, a professor at the University of Michigan, said the danger of a hard landing “seems pretty remote.”
Rather, the overheated job market keeps the non-delivery scenario alive. In other words, the economy is growing so fast that the Fed has to hit the brakes even harder, putting us at risk of recession. But that will take time to materialize and will become an issue in 2024.
