Recession or not, there is pain

When is a recession really not a recession? When it’s a “rolling” recession.

A rolling recession occurs when different segments of the economy experience weakness at different times, resulting in very low overall gross domestic product growth. By maintaining minimal growth and avoiding sharp and prolonged recessions, we can avoid a gradual recession known as a formal recession. A rolling recession is also often called a “growing” recession.

“It has the best face for the recession,” explains Kenneth Kim, senior economist at KPMG, a multinational tax and accounting services firm. “GDP output will increase somewhat, but it will be so low that it will feel like a recession for businesses and households. We will continue to raise rates until the beginning of the year.”

Hard-line Federal Reserve Board

The term has gained momentum since Fed Chairman Jerome Powell recently warned in a short, uncharacteristically sharp speech at the annual Jackson Hole Economic Symposium that there will be “sustained periods of below-trend growth.” , is on the tongues of a growing number of investment managers and strategists. Central banks remain focused on easing stubbornly high inflation.

Powell abandoned the concept of a soft landing and reiterated that the Fed’s “overall focus” is to achieve price stability and reach its 2% inflation target. will require more rate hikes, more unemployment and “pain for households and businesses,” he said.

“Using Powell’s Words pain It can be viewed as a recession code,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. (During)“Some version of a rolling recession could occur.”

“The best-case scenario is inflation receding, the labor market cooling, and the Goldilocks economy reviving,” she adds. “But it’s a fine needle to thread through.”

Sonders said stocks remain in a bear market and economic growth is weak. At the same time, she expects corporate profits to weaken, the housing market to continue to soften, and the labor market to deteriorate as the Fed aggressively curbs inflation.

Morningstar chief economist Preston Caldwell says “growth is definitely slowing,” but he doesn’t want to say we’re in a recession, and what kind of recession awaits. He said it was “very unlikely” that the fall in GDP in the first half of the year represented a recession. That was driven by the “noisiest element” of spending, offset by other data points that showed growth. “Recession risks will be most concentrated in 2023, when full-year growth bottoms out,” Caldwell said.

Stocks fall on Fed’s more restrictive stance

Powell’s speech sent major stock market indices down across the board for days, ending August in the red. Sales continued into September. Cleveland Federal Reserve Bank President Loretta J. Mester also put pressure on stocks in her speech titled “Returning to Price Stability” at the Dayton Chamber of Commerce in Ohio.

Mr Mester said: I don’t think the Fed will lower the Fed’s interest rate target next year.”

The Morningstar US Market Index fell nearly 4% in August and was down 4.41% in the week to Thursday. It is down 17.91% year-to-date.

A chart showing the performance of the Morningstar US Market Index for July.

Adrian Helfert, chief investment officer for multi-asset strategies at Dallas-based Westwood Holdings Group, which manages approximately $12.1 billion, said: “We are heading towards a prolonged low-growth environment that allows for the increased likelihood of a recession within the industry. People are in good shape with low debt and high savings, so a sharp contraction is unlikely.”

Such an environment would hurt corporate earnings and make equities less attractive, but should benefit high-quality corporate bonds, says Helfert.

Edward Yardeni, founder and president of Yardeni Research, a global investment strategy and advisory services firm, said in a briefing on Aug. was in the “Rolling Recession”. since the beginning of this year. Yardeni sees that could continue until the end of the year. said real GDP fell slightly in the first half of the year, based on the decline in He tracks capital spending based on regional business surveys conducted by Federal Reserve regional banks.

On September 1, the Institute for Supply Management released its monthly Manufacturing Purchasing Managers Index for August. Yardeni said the ISM M-PMI was unchanged at 52.8, with key components showing expansion above 50, indicating “confirmation of the economic outlook, including slowing growth and easing inflationary pressures”. said there is.

Schwab’s Sonders says rolling or growth stagnation is not common in modern times. But “this cycle is incredibly unique,” she says. This is because of the pandemic and the turmoil associated with it that we are “still at the mercy of”.

The 10-month recession from April 1960 to February 1961, which caused then-Vice President Richard Nixon to lose the presidency to John F. Kennedy, is often referred to as the “rolling adjustment recession.” will be Caught off guard by Americans’ growing preference for small, foreign-made cars, the auto industry was particularly hard hit as companies were forced to cut inventories and alter production.

The concept of a “growth recession” was first introduced in 1970 by the late economist and former director of the National Economic Research Institute, Solomon Fabricant, and was associated with rising unemployment, falling incomes, and weak production. Not everyone accepted the concept. As the late columnist William Sapphire said in his 1984 article, new york timesEconomist Herbert Stein ridiculed that growth depression is the same as calling a dog a “growth horse.”

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