A Wealth of Common Sense: Everyone Is Predicting a Recession But No one is Acting Like It (Yet)
The US saw negative GDP growth in the first two quarters of 2022. Historically, that’s a sign of a recession. However, one hasn’t been declared yet. However, a number of pundits, politicians, and bankers expect one in 2023.
Their reasoning? The economic slowdown already underway. Rising interest rates. And an inverted yield curve. In fact, these predictions have been a regular feature of financial headlines for months.
Yet despite the overall statistics about the economy now, and these predictions… it doesn’t feel like a recession.
Stores are full. Air travel is robust. And even with higher gas and grocery prices, there’s still strong signs of consumer spending.
And even with ever-higher prices rising faster than inflation, Disney (DIS) parks are at capacity every day.
That’s at odds with the stock market being down so much compared to a year ago. Or the housing market starting to slow significantly.
One likely reason for this trend? Soaring savings during the pandemic. So even with a recession potentially already here, consumers are still drawing down excess cash. When that money runs out, we could truly see a slowdown that makes for an official recession.
And when that finally happens, we may find that the Fed has raised interest rates too far, too fast. That could lead to a sharp reversal in policy, which could send asset prices rising again, even as consumers feel the pinch.