Are we in a recession? No, JP Morgan strategist explainsLast updated: 01.08.2022
When asked whether the U.S. is in a recession, Elyse Ausenbaugh, global market strategist at JP Morgan, told Yahoo Finance Live: "We do not [think so]."
“To us, the main things we're focusing on are ongoing strength in the labor market,” Ausenbaugh added. “Looking into components of GDP, the fact that consumers are still spending in real terms and that things like credit card delinquencies remain at all-time lows is an encouraging sign that, although the window is narrowing, we're not yet in that recessionary-type scenario that we're watching for that could potentially play out.”
Conventional wisdom says that two consecutive quarters of economic decline is a marker of recession.
And the Bureau of Economic Analysis (BEA) reported Thursday that second-quarter GDP fell 0.9% as consumers and businesses pulled back on their spending due to high inflation. This marked the second-straight quarter of economic contraction after GDP in the first quarter declined by 1.6%.
But the organization that is actually tasked with calling recessions — the National Bureau of Economic Research (NBER) — has a more nuanced view on the threshold for recession.
"The NBER's definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months," the outfit said on its website. "In our interpretation of this definition, we treat the three criteria — depth, diffusion, and duration — as somewhat interchangeable. That is, while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another."
Many market experts and investors — as well as Fed Chair Jerome Powell and Treasury Secretary Janet Yellen — appear to be finding solace in the NBER's interpretation as job growth remains solid and consumer spending hasn't fallen off a cliff.
However, while the economy might not have met the conditions for a recession, that doesn't mean it's headed in the right direction.
Within the past month, investors have endured major profit warnings from big-name retailers such as Target, Walmart, and Best Buy as consumers battle through rising prices for gas, food, and rent. These material profit warnings are an unwelcome sign about consumers' spending decisions.
The Conference Board's consumer confidence measure, meanwhile, has slipped for three-straight months, stocks remain in bear market land, and companies from Tesla to Meta are announcing hiring pullbacks.
"Today’s [GDP] report is further evidence that the U.S. economy is quickly losing momentum and increases the likelihood that even the broadest definition of recession will be met before the end of the year," David Kelly, chief global strategist at JP Morgan Asset Management, wrote in a note to clients.