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If you went to Google and asked, is the United States in a recession? Much like the current economic state, you would receive a very muddy, uncertain forecast. The reason the answer isn't so straightforward is because the current economy is not outrightly experiencing a decline. In fact, the economy is adding 390,000 jobs as of May with an unemployment rate of 3.6%, according to data released by the Bureau of Labor Statistics. This is a direct result of the Federal Reserve's aim to reduce inflation whereby in correlation temporarily raising interest rates.
“This economy needs to cool to get inflation under control and that is happening,” said Edward Moya, a senior market analyst at broker OANDA.
Economists are however keeping a close eye on the momentum and trajectory of the economy and although things currently look somewhat favorable, the truth of the matter is that financial conditions are tightening with stocks down, rates up, dollar up. It these trends persist, the probability of recession as early as next quarter is not only realistic, but likely.
“I’ve got a recession probability of 25% this year and 35% over the next two years,” says Joe Brusuelas, chief economist for RSM US, an audit, tax and consulting service. “There’s some very good things happening right now in the economy apart from the significant inflation challenge that’s at the doorstep of the Federal Reserve.”
A 2022 recession remains a matter up for debate. Some of the most common identifiers or tip-offs to determine an approaching recession includes (1) global unrest, (2) inflation, and (3) unemployment. We can't necessarily check all of these boxes, however; inflation continues to climb, the war in Ukraine persists, and as of May, we saw the first sign of a job slowdown when the economy reported 390,000 added jobs thus, breaking the 12-month recorded streak of 400,000 jobs.
So, the takeaway? There is no yes or no answer on Google! And, even if there was, if we were in a recession, it will take a couple of months of economic data analysis before a formal announcement or declaration is made.
There is a lot of uncertainty about the future of the economy, but it remains important to remember that even in the event a recession does unfold, it doesn't mean that the economy will automatically collapse. In fact, many economists believe that a recession can actually be good for the economy in the long run, as it can help to correct imbalances and ensure sustainable growth.
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