With another negative United States Gross Domestic Product (GDP) reading, for the second quarter, at -0.9, following the first quarter’s -1.6 reading, it begs the question of: is the U.S. economy is in a recession?
That is not for me to answer, for more than a few reasons. But whether we are in an official recession or not, remains uncertain, one thing that is pretty certain is that there are all kinds of mixed signals, headwinds, tailwinds, green shoots and all other fancy terms for a whole host of economic indicators that could certainly make the case for or against these being recessionary times.
On one hand, the unemployment rate, at 3.5%, remains at a record-low, its lowest level going back to February 2020, not long before the pandemic really kicked in. And, as been the case through pandemic-driven economic ups and downs, consumers continue to spend, as evidenced by largely solid monthly retail sales data.
And on the other hand, amid consumers’ ongoing desire for spending, are record-high, 40-plus years high, actually, inflation levels and also high (but now declining) oil and gas prices, with each effectively serving as a source of consumer angst and frustration, to be sure.
Ben Hackett, president of maritime consulting firm Hackett Associates, made the following observation regarding the prospects of a recession in the monthly Port Tracker report his firm produces with the National Retail Federation.
“Now that we’re in the second half of the year, the heady days of growth in imports are quickly receding,” wrote Hackett. “The outlook is for a decline in volumes compared with 2021 over the next few months, and the decline is expected to deepen in 2023. Does this mean a recession is here or coming? Not immediately. We have just experienced two quarters of year-over-year contraction in gross domestic product, but even that is not a sure-fire indicator of recession.”
The reasons for that, explained Hackett, are that consumers continued to spend in the first half of the year, coupled with continued strength in employment numbers, as an additional 528,000 jobs were created in July and the unemployment rate fell to 3.5%, matching the 50-year low seen prior to the pandemic.
He added that other indicators, however, are showing signs of weakness as inflation climbs.
“And with the Federal Reserve raising interest rates at an unprecedented speed, borrowing money to finance anything from cars to homes will become very expensive,” stated Hackett. “The Fed’s policy is focused on reducing inflation, but there is a risk that its actions might bring a recession if the central bank goes too far too fast. Growth in overall consumer spending— beyond just retail sales—has already stalled.”
Paul Bingham, Director, IHS Markit Economics and Country Risk/Transportation Consulting noted that while IHS is not forecasting a U.S. recession in 2022 or 2023, he said that comes with the caveat that the economic outlook is near or on the cusp of it.
“We have said that the risk of a recession is now between 40%-to-50%,” said Bingham. “But we are still saying—based on the fundamentals (low unemployment, solid retail sales, rates, final sales numbers), there are many signals saying a soft landing may just be possible. The Federal Reserve might pull it off. Because you have households that still have substantial wealth, despite the correction in the equity markets, and despite some softening in housing.”
Looking at the prospects of a recession from a freight perspective, Bingham explained that it is not apparent, in things like data related to for-hire carriers, trade backlogs, earnings, loads, and Transpacific trade lane rates remaining well above 2019 levels.
“We may be headed towards a recession but we are not there yet,” said Bingham. “Based on the data released so far, we are not at or to the point to say ‘yes, we are already in and we are forecasting a recession.’ Now, our macroeconomists have said there are elements of the economy that are clearly slowing down and we are calling it a growth recession, where are not going to achieve potential GDP growth this year because there is sectoral weakness, where some sectors are clearly already in a downturn. We can see that. It has already started in housing and anticipate it is going to spread because of the Fed Reserve monetary policy purposely trying to slow some of that economic activity.”
Will recessionary sentiment change should we see another negative GDP number for the third quarter? That is definitely possible. But we are not there yet. While it remains somewhat unclear if we are definitely in a recession, it is something that is, and will remain, top of mind, as supply chain, logistics, and freight transportation operations moves forward.