Jerome Powell

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    Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our&nbsp;<a href="https://tokenist.com/terms-of-service/" style="text-decoration:underline;color:#3c7b7b" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">website policy</a>&nbsp;prior to making financial decisions. 
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  <p class="has-drop-cap">In the latter half of 2022, recession announcements began in earnest. In June ’22, <a href="https://tokenist.com/68-of-economists-believe-us-will-enter-a-recession-by-2023-ft-survey/" rel="noopener noreferrer nofollow" class="deco-link">68% of economists</a> believed recession would hit US shores by 2023. In September, Nouriel Roubini, former IMF economist known as “<a href="https://www.imf.org/en/Videos/view?vid=677641978001" target="_blank" aria-label="Dr. Doom (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">Dr. Doom</a>” who predicted the 2008 financial crisis, also sounded the alarm bells, warning of a “long and ugly” recession.&nbsp;</p> 
  <p>In October 2022, former US Treasury Secretary Larry Summers said that recession became almost inevitable once inflation crossed 5%, alongside unemployment over 6%. As recently as this April, Summers again <a href="https://www.bloomberg.com/news/articles/2023-04-07/larry-summers-sees-higher-chance-of-recession-fed-nearing-the-end" target="_blank" aria-label="warned (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">warned</a> that “recession probabilities are going up.”</p> 
  <p>That was after Summers’ January statement to be “<a href="https://fortune.com/2023/01/13/larry-summers-warns-recession-likely-be-careful-false-dawns-inflation-fed/" target="_blank" aria-label="careful of false dawns (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">careful of false dawns</a>.” Yet, despite recession announcements becoming trendy, they never officially materialized. Instead, both inflation and unemployment rates are low, indicating a sound economy.&nbsp;</p> 
  <h3 id="low-inflation-and-unemployment">Low Inflation and Unemployment</h3> 
  <p>June’s Consumer Price Index (CPI) report shows inflation <a href="https://tokenist.com/us-cpi-fell-to-3-in-june-fed-expected-to-continue-with-rate-hikes/" rel="noopener noreferrer nofollow" class="deco-link">dropping</a> to 3%, the lowest since March 2021. Likewise, the unemployment rate dropped to 3.6%, fluctuating between 3.4% – 3.7% since March 2022. This marks a consistently tight labor market, a key counter-recession indicator.&nbsp;</p> 
  <p>Both unemployment and inflation hitting low ranges are all the more interesting as the Fed Chair, Jerome Powell, hinted multiple times that a tight labor market will have to loosen up to combat inflation. The unemployed usually have less money to spend, which translates to lowering demand.&nbsp;</p> 
  <p>And if demand for goods and services is lower, this cools the overheated (inflated) economy. Consequently, this translates to a GDP downturn, which the National Bureau of Economic Research (NBER) will combine with other factors to announce a recession officially.&nbsp;</p> 
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  <h3 id="economy-still-flushed-with-cash">Economy Still Flushed with Cash</h3> 
  <p>As of the latest Bureau of Labor Statistics report, average hourly wages are above the inflation rate, at an <a aria-label=" (opens in a new tab)" href="https://www.bls.gov/news.release/pdf/realer.pdf" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">annual 4.4%</a>. For the last four consecutive months, earnings have outpaced inflation. Most importantly, consumers have had more cash in bank accounts than in 2019, adjusted for inflation.</p> 
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   <img decoding="async" width="1024" height="827" src="https://tokenist.com/wp-content/uploads/2023/07/infographic-pulse-cash-balances-fig-2-1024x827.png" alt="" class="wp-image-162423" srcset="https://tokenist.com/wp-content/uploads/2023/07/infographic-pulse-cash-balances-fig-2-1024x827.png 1024w, https://tokenist.com/wp-content/uploads/2023/07/infographic-pulse-cash-balances-fig-2-300x242.png 300w, https://tokenist.com/wp-content/uploads/2023/07/infographic-pulse-cash-balances-fig-2-768x620.png 768w, https://tokenist.com/wp-content/uploads/2023/07/infographic-pulse-cash-balances-fig-2-1536x1241.png 1536w, https://tokenist.com/wp-content/uploads/2023/07/infographic-pulse-cash-balances-fig-2-2048x1654.png 2048w, https://tokenist.com/wp-content/uploads/2023/07/infographic-pulse-cash-balances-fig-2-650x525.png 650w" sizes="(max-width: 1024px) 100vw, 1024px"> 
   <figcaption class="wp-element-caption"> <em>Image courtesy of <a href="https://www.jpmorganchase.com/institute/research/household-income-spending/household-pulse-cash-balances-through-March-2023#finding-1" target="_blank" aria-label="JPMorgan Chase Institute (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">JPMorgan Chase Institute</a></em> 
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  <p>According to JPMorgan Chase Institute, in March 2023, median cash balances were up 10 – 15% for every income quartile. This analysis comes from 9 million Chase customer accounts, both savings and checking.&nbsp;</p> 
  <p>This absorption layer, initially boosted by stimulus checks post-lockdowns, is the main reason for the delayed recession. Accordingly, consumer sentiment is still high, hitting the most favorable reading since September 2021, at <a aria-label=" (opens in a new tab)" href="http://www.sca.isr.umich.edu/" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">41% year-over-year</a> shift.</p> 
  <h3 id="geopolitics-factoring-in">Geopolitics Factoring In</h3> 
  <p>It also has to be noted that the US benefits greatly from Europe’s turmoil. After the sanctions against Russia and the sabotage of the Nordstream 2 pipeline, Germany’s industry is in freefall, having <a href="https://www.reuters.com/business/energy/germanys-schwedt-refinery-losing-out-race-russian-oil-2023-03-07/" target="_blank" aria-label="lost (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">lost</a> access to cheap Russian gas.</p> 
  <p>Making it less competitive, foreign investments in Germany hit the <a aria-label=" (opens in a new tab)" href="https://assets.ey.com/content/dam/ey-sites/ey-com/de_de/news/2023/05/ey-standort-deutschland-2023.pdf" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">lowest range since 2013</a>. At the same time, German companies are planning more US investments. The German American Business Outlook <a href="https://www.gaccmidwest.org/en/media/publications/german-american-business-outlook" target="_blank" aria-label="survey (opens in a new tab)" rel="noopener noreferrer nofollow" class="deco-link">survey</a>, covering 200 businesses, revealed that 93% plan to increase US investments over the next three years.</p> 
  <p>This level of macroeconomic-geopolitical coordination is not surprising. In 2011, <a aria-label=" (opens in a new tab)" href="https://www.c-span.org/video/?300830-5/jay-powell-consequences-debt-default" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">Jerome Powell noted</a> that “bad economic news drives people out of stocks and into bonds.” Consequently, this process “bids down the interest rate the government requires to pay.”</p> 
  <p>Simultaneously, Powell accounted for “turmoil in Europe” to drive people into US government debt (bonds). With the <a href="https://tokenist.com/the-us-debt-ceiling-crisis-explained/" rel="noopener noreferrer nofollow" class="deco-link">US debt ceiling</a> raised again, the US economy has gained even more recession-absorption stamina.&nbsp;</p> 
  <p>With that said, the recession may just be postponed. The US budget deficit continues to deepen, hitting <a aria-label="$2.3 trillion (opens in a new tab)" href="https://www.crfb.org/blogs/deficit-was-22-trillion-over-past-year" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">$2.3 trillion</a> in June. This is over twice as large a shortfall as before the lockdowns.</p> 
  <p>Consequently, more money is going into paying interest rates instead of productivity and growth. And if the economy is not growing quickly enough, combined with wage inflation, this may induce an economic downturn – <a href="https://tokenist.com/investing/investing-during-a-recession/" rel="noopener noreferrer nofollow" class="deco-link">recession</a>.&nbsp;</p> 
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  <p><strong><em>Do you think the official data on inflation and unemployment is trustworthy? Let us know in the comments below.</em></strong></p> 
  <p>The post <a rel="noopener noreferrer nofollow" href="https://tokenist.com/how-the-us-has-avoided-a-recession-so-far/">How the US Has Avoided a Recession, So Far</a> appeared first on <a rel="noopener noreferrer nofollow" href="https://tokenist.com">Tokenist</a>.</p>
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How the US Has Avoided a Recession, So Far

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