- Rapper Cardi B asked her Twitter followers when "y'all think they going to announce that we going into a recession."
- Today's economy probably isn't in a slump, as most data shows the recovery still running strong.
- Yet a growing number of economists see a mild downturn arriving in 2023.
Rapper Cardi B has joined the millions of Americans who feel like the economy is in the can.
She asked her nearly 23 million Twitter followers on Sunday when "y'all think they going to announce that we going into a recession." Fears of an imminent downturn seem to be everywhere.
—Cardi B (@iamcardib) June 5, 2022
Cardi B isn't alone in worrying that the US is in a recession. Consumer sentiment is the weakest it's been in a decade, dragged lower by the highest inflation in four decades. Google searches for "recession" are on the rise. More and more Wall Street economists are bracing for a downturn. Americans worried the country is in a recession have many reasons for doing so.
But right now, few signs suggest that's the case, but more and more evidence points to an economic slump in 2023.
For all the headlines, debates, indicators, and forecasts, recessions are finicky things. They can range dramatically in their severity, cause, and outcomes.
Here's what you should say when someone asks you what's going on in the economy.
The most commonly used criteria for a recession haven't been met
The National Bureau of Economic Research says recessions require "a significant decline in economic activity that is spread across the economy and lasts more than a few months." While the coronavirus crash was relatively short from peak to trough, the size and breadth of the decline were enough to meet the NBER's criteria.
Following that standard, it's unlikely the US economy currently sits in a recession. Economic output did decline at an annualized rate of 1.4% through the first three months of 2022, but that pales in comparison to the 31.2% plunge seen through the second quarter of 2020.
The bulk of the decline was also powered by slowdowns in net exporting and inventory build-up, not a broad waning of economic activity here at home. The trade slowdown was largely fueled by increased importing amid a time when Americans are buying a ton. The decline in businesses' inventories, meanwhile, was more a reversion to the normal trend, since the prior quarter saw their stockpiling spike higher.
Without those two factors weighing on overall GDP, the economy likely would've posted yet another quarter of stellar growth. Consumer spending, which makes up about two-thirds of GDP, grew at an annualized rate of 2.7%, and business investment expanded at a 9.2% pace, suggesting that companies are still seeing strong future prospects.
The economic recovery is still chugging away
To believe the economy is currently in a recession also ignores several signals it's still growing at a healthy pace. According to the most closely watched indicators, the recovery is alive and well.
Job creation, for one, remains about twice as strong as the pre-pandemic trend. The US added 390,000 nonfarm payrolls through May, beating economists' forecasts and keeping the country on track to recover all its lost payrolls by the end of summer.
Despite some layoffs at high-profile tech companies, jobless claims are still near their pre-pandemic lows, hinting companies aren't laying off workers en masse to cut costs.
Inflation may be extraordinarily high, but that hasn't kept Americans from pouring more fuel into the economic engine. Spending at retailers and restaurants rose to a record $677.7 billion in April, dashing forecasts that soaring prices might finally be weighing on demand.
Recession forecasts peg 2023 as the year of the downturn
Just because the economy is doing well today doesn't mean a recession isn't on the horizon. A handful of economists have penciled in a downturn in the near future, arguing the Federal Reserve's aggressive rate increases will slow growth to a halt. Yet even those forecasters don't see the slump starting until at least late 2022, with most projections pointing to 2023 as the year of concern.
The delay comes down to the slow pace at which Americans shift their spending habits. Demand for goods shot higher early in the pandemic as lockdowns curbed spending on in-person services. That drove goods spending well above the pre-crisis trend, where it remains to this day.
That rally is expected to reverse course through 2022. Deutsche Bank economists — the first major bank to make a recession call — expect spending on goods to revert back to the pre-pandemic trend as demand moves back to services like travel and dining.
The reversion in goods spending won't spark a severe downturn, but it will be enough to slow economic growth next year, Brett Ryan, a senior US economist at Deutsche Bank, told Insider.
"The type of recession we're looking at is not like a serious, massive downturn in consumer spending across the board," he added.
So no, the US most likely isn't in a recession today. But as demand cools down and the economy settles into a new normal, more economists see a mild downturn coming next year.