Why a near-term recession is unlikely: Morning Brief

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Tuesday, April 19, 2022

Today's newsletter is by Emily McCormick, a reporter for Yahoo Finance. Follow her on Twitter

Everybody’s talking about a recession that may not come — anytime soon.

Calls for a downturn have escalated in recent months amid soaring inflation, inverted Treasury yield curves, and the specter of tighter monetary policy from the Federal Reserve. Goldman Sachs economists said they place the odds of a recession in the next year at 15%, and in the next two years at a more worrying 35%. A recession is defined as two consecutive quarters of negative growth in a country's gross domestic product (GDP).

And it’s not just the Wall Street banks. Google searches in the U.S. for “how to prepare for a recession” nearly tripled over the past week alone, said Neil Dutta, head of economics at Renaissance Macro Research, citing Google Trends data. However, this spike in interest may actually be a sign that concerns of a recession are reaching an apex.

“Indeed, when the sell-side consensus is competing to see who can pencil in rising recession probabilities fastest and ordinary people are searching about these topics on the internet, you can be sure the news is already reflected in market prices,” Dutta said in a note Monday. “The next move is lower recession risk and slower inflation rates.”

What’s particularly “unusual” about recession talk this time around, Dutta added, is how disconnected it is from the strength in economic data. Many of the most recent U.S. reports have painted a picture of an economy still firing on all cylinders, even as inflation runs at its fastest rate in 40 years. In the labor market, non-farm payrolls have increased by an average of over 550,000 per month in the first quarter this year, following average growth of more than 600,000 per month in the fourth quarter.

“That’s barely consistent with a slowdown, let alone a recession,” Dutta said.

And even consumer sentiment, which has been weighed down this year by rising prices, has shown signs of recovering from a nadir. The University of Michigan’s closely watched Surveys of Consumers index unexpectedly rose to 65.7 in early April, which while still depressed compared to pre-pandemic levels, was up nearly 11%, compared to the prior month’s more than 10-year low.

Calls for a recession among Wall Street pundits have ramped up in recent weeks.
Calls for a recession among Wall Street pundits have ramped up in recent weeks. · Hans Neleman via Getty Images

Some other strategists also suggested the lingering cushion of consumer savings and still-resilient spending would help prop up the U.S. economy.