Recession looks likely - 2022

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U.S. recession looks likely — and there are 3 ways the economy could get hit, analyst says

The odds of the U.S. economy falling into recession by next year are greater than 50%, TD Securities said Monday.

Outlining three potential risks, the investment bank named rising gas prices, a hawkish Federal Reserve and a generally slowing economy.

“The odds of a recession in the next 18 months are greater than 50%,” global head of strategy, Richard Kelly told CNBC.
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https://www.cnbc.com/2022/07/11/us-...ere-are-3-ways-the-economy-could-get-hit.html
 
50% is about as high as any of those forecasters will ever go. High enough to be right, low enough to say they never called one if if doesn't happen.

In 2008, the announcement came December 1 and the market bottomed three months later. By June 2009, we were higher than December 1. Waiting until the all-clear in September wasn't a bad move long term, but you did miss out on quite a share of the gains.

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https://www.brightonjones.com/blog/market-timing-recessions/
 
I agree - it's rear-view mirror data, but I'm not sure when they will officially announce this recession. It may not be until after September.
 
I’m pretty sure now that it’s not going to be anywhere near as deep or long as I was thinking five months ago. I think it will be shallow, and bounce back stronger, and sooner than I expect.


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I don't have much ammo to argue against that possibility, but the Fed has no plans to stop raising rates nor ceasing their quantitative tightening, and gasoline prices add an additional tax on consumers and increases business expenses, so I would be surprised if somehow the economy gets stronger during the coming months. And if the Fed is successful in cutting inflation down it almost by definition suggests putting the breaks on the economy.

But that doesn't mean the stock market can't bottom first. We know it can lead the economy by 6 months or more.
 
Paul Krugman of the New York Times wrote a great piece highlighting the conflicting economic data used when arguing whether or not we're headed toward a recession.

[TABLE="width: 100%"]
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...given the wide discrepancies in economic data, economic pundits (including me) have unusual freedom to believe whatever they want to believe. Just pick and choose the numbers that tell you what you want to hear and glue them together.
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I'm not sure if the link will work without a New York Times subscription but give it a shot.

The Humbug Economy[/TD]
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[/TABLE]
 
Krugman doesn't have a lot of credibility in my book, but that quote sounds about right.
 
Leveraged loans are a risk. So are weak borrowers. Just like 2008 with subprime loans, how many extended themselves with large home and auto purchases but then got whacked by rising prices elsewhere in the budget? Lenders always say don't worry, inflation will make your payment cheaper over time. That's only true if your earnings keep up with inflation.

Oil prices are important to watch, but the price of gasoline might be a better gauge since the US does not have enough refiners to keep up with demand. Oil prices could very well see a collapse if there's a supply glut. It's a very volatile commodity with wild swings a common occurrence. This administration said today that gasoline prices will be more than 100% the annual increase in tomorrow's CPI report.

Yield curve really looks like it wants to roll negative. If that's the case there is often a lag of six months to three years, which is a very broad time range. So much can change in that amount of time it's probably not even worth watching.

PMI reading in June is a sign of an expanding economy, I guess that's considered bullish.

The dollar is a problem because if/when that comes back down to earth, US inflation will get a lot worse since all the stuff we import will cost more.

One thing that needs to happen is COVID being dropped in the rear view mirror. Leaders in countries everywhere just don't want to let go since it's a crutch for everything they want or failed to achieve. For China to be shutting down cities populated with over 20M due to 69 new COVID cases is ridiculous.
 
Is it really a recession if corporations keep hiring instead of laying off workers? We are seeing contraction in economic output all while unemployment remains low (3.6% in June). WSJ shares an informative video on this contradiction that would make a 2022 recession look and feel different than previous recessions.

The average corporate profit margin remains high along with their typical cash holdings. These factors along with the low supply of workers keeps corporations from layoffs that would typically feed the economic contraction in a recession. Despite low consumer sentiment due to high inflation, workers are holding their job security and their spending may allow corporations to weather the latest slowdown in output until the economy adjust. Or the economy will keep contracting until companies are forced to start layoffs.



Why a 2022 Recession Would Be Unlike Any Other
 
Only 12 more days until GDP comes in negative to make it official.

When does the fed stop and when do they reverse course to fend off deflation again?
 
Google, Microsoft, Tesla all announcing layoffs and multiple companies now delaying or cancelling real estate projects. Just about any company involved in electric vehicles are laying people off too. This whole worker shortage was fabricated. People don't need, want or have the money for things from Shopify, Etsy, Twilio, Roku, Docusign or Pinterst. Tech companies over hired and over built their campuses, now they are dialing back.

Rents usually aren't adjusted until yearly contracts are renewed. Wait until 2023 when rents increase.
 
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