28 Oct 2022
Recession, what a loaded word. To many, it conjures up images of job losses, unpaid bills, lifestyle impact, and asset impairment. Financially, it might be the single word that produces the most fearful imagery. It gets your attention, and maybe that is the point.
Lately, I can’t escape this word. Almost everywhere I go and everything I read or watch, people are hyper focused on discussing this apparent inevitable recession. As I have stated before, this might be the most expected recession in history.
It should be noted, that while asset prices have been substantially impaired in 2022, there has been no recession yet. Not for the U.S., the Euro block, Japan, China, or Australia and Canada. So far, the pontificators have been wrong. I know, they are not wrong, I think they are just early.
At the time of this writing (October 26, 2022), third quarter GDP has not been finalized and announced. It should be noted though that the Atlanta Fed GPDNow expects 3.1% growth in the third quarter[1]. This is not recessionary, in fact, it is far from it. In the old pre-COVID days of the slow and low, this would be construed as a fantastic economic print.
Confused? How can we be experiencing economic growth during such a period of dire pessimism? Let’s break it down. The following is a table of the probable economic factors that the National Bureau of Economic Research (NBER) considers in determining whether we are in a recession or not.
NBER Potential Recession Factors
Details to Consider:
- Almost every data point that the NBER is probably monitoring to determine whether we are in a recession or not is near or at its peak. This would imply that we are close to the best economy ever, not the worst.
- Every one of these indicators are backwards looking. Investors should be forward looking.
- Rising interest rates have yet to flow through to the economy and earnings. Generally, interest rates take about a year to reach their full impact.
- I think there is a significant chance that these conditions will deteriorate. At this point, I consider this to be the consensus and priced opinion.
- Historically, by the time recessions are officially announced, the best buying opportunities have often passed.
- You simply can’t be an investor without worrying about something, there is always something to worry about.
- There is also a good chance that conditions won’t turn out as bad as many are predicting.
[1] https://www.atlantafed.org/cqer/research/gdpnow
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