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Economists are divided on the risk of a U.S. recession. And the jobs data isn’t helping

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Is the U.S. economy showing no signs of a recession or hurtling inescapably towards one? Is it in fact already in one? 

More than a month after the country recorded two successive quarters of economic contraction, it still depends who you ask. 

Steve Hanke, professor of applied economics at Johns Hopkins University, believes the U.S. is headed for a “whopper” of a recession in 2023. While Stephen Roach of Yale University agrees it will take a “miracle” for the U.S. to avoid a recession next year — but it won’t be as bad as the downturn of the early 1980s. 

Yet the Nobel Prize-winning economist Richard Thaler says he doesn’t see “anything that resembles a recession” in the U.S. right now, pointing to recent low unemployment, high job vacancies, and the fact that the economy is growing — just not as fast as prices. 

And market participants are similarly divided. 

Liz Ann Sonders, chief investment strategist at Charles Schwab, says a recession is more likely than a soft landing for the U.S. economy right now, although it may be a rotational recession that hits the economy in pockets. 

While Steen Jakobsen, chief investment officer at Saxo Bank, was clear in a recent interview with CNBC: the U.S. is not heading for a recession in nominal terms, even if it is in real terms.

A recession is more likely than a soft landing, says Charles Schwab's Liz Ann Sonders

Recent surveys reflect the split. A Reuters poll of economists in late August put the chance of a U.S. recession within a year at 45% (with most saying one would be short and shallow), and a Bloomberg survey put the probability of a downturn at 47.5%. 

Mixed signals 

Are we in a recession or what?

William Foster, senior credit officer at Moody’s, said jobs-versus-GDP continued to be the big debate among economic commentators, against a backdrop of the U.S Federal Reserve changing quickly from an accommodative monetary policy — where it adds to the money supply to boost the economy — to a restrictive one, involving interest rate hikes in order to tackle inflation, which hit 8.5% in July.

“We’re coming out of an extraordinary period that’s not been seen before in history,” Foster told CNBC by phone. 

When making its decision, the National Bureau of Economic Research looks at real income for households, real spending, industrial production and the labor market and unemployment — and those variables aren’t giving clear recession signals, Foster said. 

“The jobs market is still struggling to hire people, particularly in the services sector,” he said.

Wider indicators

Volatile times

There are broader reasons for the current level of debate too, said Alexander Nutzenadel, professor of social and economic history at the Humboldt University of Berlin.

“We live in a period of multiple shocks – from Covid 19 over energy prices to political deglobalization – which make predictions extremely difficult,” he told CNBC by email. 

This means the economic performance of a highly developed country such as the U.S. depends heavily on external factors. 

U.S. needs a 'miracle' to avoid recession, warns Stephen Roach

Source: CNBC