Almost everyone expects a recession.  Could the economy avoid one?

Almost everyone expects a recession. Could the economy avoid one?


Joe Shamie hears a lot about an impending recession. But his company just doesn’t feel it.

Shamie is expecting a decent holiday season for her company, Delta Children, which sells strollers, cribs, bassinets and other baby furniture. He is encouraged by the fact that global supply chains are thinning out and borders are gradually loosening. From its New York headquarters, it has no plans to cut staff and would hire more people if the right candidates come forward.

“People and companies create their own self-fulfilling prophecy: you expect the worst, you end up creating the worst,” Shamie said. “I laugh because sometimes I sit with some of my friends, talking about how bad the situation is. And I say, ‘We’re in a wonderful restaurant, spending tons of money.’ right, and I’m like, ‘Ah, that doesn’t look so bad. And yet, you’re complaining.’

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This same divide permeates the entire economy, as people prepare for an impending downturn – but are yet to feel it in their daily lives. The prevailing view among economists and Fed watchers is that the country is headed for a recession. And the experts have good reason to explain this pessimism: the Fed is in full an all-out effort to drive down dangerously high inflation, raising interest rates at the most aggressive pace in decades. On Wednesday, Federal Reserve Chairman Jerome H. Powell will speak at the Brookings Institution, where he is expected to set the stage for smaller rate hikes in the weeks and months ahead while reinforcing the commitment of the Fed to control inflation.

Yet the dreaded recession did not happen. Since the Fed began aggressively raising interest rates in March, the economy’s crucial pillars have remained remarkably strong. The economy grew in the third quarter after shrinking in the first half. Gas prices are falling. Companies are always eager to hire workers. And for many businesses and households planning for the future, a downturn just doesn’t seem imminent.

Powell and his colleagues say they will be guided by economic data, and this week will offer plenty to analyze. The government’s new October job vacancies figures are out on Wednesday and the November jobs report is out on Friday. But for months, the resounding message from the Fed has made it clear that officials won’t stop until prices return to normal levels, and as a result, the chances of avoiding a recession are dwindling.

“With core growth only modest growth this year and next, negative shocks to the global economy, or to our economy, could clearly tip us into a recession,” the president said on Monday. of the New York Fed, John Williams. “I hope that’s not the case. But it’s clearly a risk there given all the uncertainty in the global economic outlook.

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For now, however, observers are seeing growing grounds for hope that a painful recession will not occur.

Last week, the Organization for Economic Co-operation and Development, an international group, said the global economy should avoid a recession next year, although European economies will still slow significantly as the invasion of Ukraine by Russia continues to drive up energy prices.

Earlier this month, the chief economist at Goldman Sachs put the probability of a US recession next year at 35%, well below other forecasts so far. The idea is that growth will slow but remain positive; the labor market could avoid massive layoffs; wage growth could slow; and inflation could be on the way to more normal levels.

“We still see a very plausible, non-recessionary, four-step path from the high inflation economy of the present to a low inflation economy of the future,” Goldman’s Jan Hatzius wrote in an analyst note.

The labor market and consumer spending have yet to crater despite Fed rate hikes. Employers added 261,000 jobs in October, down slightly after growing like gangbusters in the first half of the year, but still showing overall strength. Employers are desperate to hire: the number of job vacancies rose in September from the previous month, to 10.7 million.

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Consumer spending — which typically accounts for 70% of economic activity — is also robust at the start of the holiday season. Retail sales rose sharply in October, according to the Commerce Department. Buyers pay higher prices for basics like gasoline and food. But they also continue to spend on items like cars, furniture, and restaurants. Consumer confidence has also improved since the summer slump, when gasoline prices topped $5 a gallon. Pump prices have steadily fallen and on Monday the national average was $3.54 a gallon, according to AAA — down more than 10 cents a gallon from the previous week, but still higher than this time last year, before the war in Ukraine. .

Corporate earnings announcements have also become more optimistic. According to a FactSet study released Nov. 18, the number of S&P 500 companies citing the term “recession” on third-quarter earnings calls fell 26% from the second quarter.

Of course, not all parts of the economy have been spared and the weight of rate hikes here and abroad will not be felt until next year. But the housing market was quick to react. Buyer demand has slowed significantly as mortgage rates soar, which has helped prices fall as “For Sale” signs persist. Silicon Valley has also been hit by waves of layoffs and hiring freezes, including at big names like Meta and Amazon (whose founder Jeff Bezos owns The Washington Post).

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No one doubts the pain that high inflation has inflicted on people’s budgets and the disproportionate consequences felt by low-income households. More people are turning to cash-for-retirement savings, according to new research from Vanguard. Fiona Greig, global head of research and investor policy at Vanguard, wrote last week that a recent increase in the number of households tapping into their employer-sponsored retirement accounts “could be a sign of some deterioration in the financial health of the American consumer.”

Yet some economists and policymakers say there is a disconnect between how people view the economy and how they react to it. Curtis Dubay, chief economist at the US Chamber of Commerce, pointed to a paradox called “second-hand pessimism,” where people distrust the economy but don’t change their own behavior.

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“Businesses and consumers feel the economy is slowing or not in good shape, but their stocks are not following that,” Dubay said. “Consumers continue to spend… On the business side, they’re saying, ‘The economy is bad, and it’s going to get worse, but our specific situation is good.’ ”

Inflation may well explain this discrepancy. High prices and the central bank’s struggle to tame them are bringing inevitable uncertainty to families and the broader economy, said Mary Daly, president of the San Francisco Fed.

Daly said as she traveled through her district — which spans nine western states and is the largest district in the Fed system both by geography and the size of its economy — she hears that “people’s situation is different from what they fear. there, or that they even see there. A company may have found creative ways to make its margins, for example, but knows others that cannot.

“[Inflation] creates this feeling of anxiety that the economy could tip over at any moment because everyone knows it’s unsustainable,” Daly told reporters last week. “As the Fed moves to lower it, it creates uncertainty.”

“We are in a time of great uncertainty, which will add to that sense of foreboding,” Daly added.

Americans feel the anxiety. A closely watched consumer survey released by the University of Michigan this month found that in addition to the continued impact of inflation, consumer attitudes have been “weighed down by the rising cost of borrowing, declining asset values ​​and weakening labor market expectations.

For now, Shamie of Delta Children remains optimistic. He knows the economy could turn quickly. Parents may have to rethink a new play if inflation continues to climb or the economy suddenly slows. But so far, he’s sticking to his plans.

“There are real issues, existing issues, obviously,” Shamie said. “But I think people tend to pull back – lay off people, lay off people, cut spending. And then it all comes back to their business because the whole economy ends up shaking.

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