Whatever happened to that big recession we were supposed to have?

“The 360” shows you diverse perspectives on the day’s top stories and debates.

Photo illustration: Alex Cochran for Yahoo News; photos: Jason Moskowitz via Getty Images
Photo illustration: Alex Cochran for Yahoo News; photos: Jason Moskowitz via Getty Images

What’s happening

More like what isn’t happening. Ever since the pandemic started to subside early last year, experts have warned that the American economy is destined for a recession. And Americans have believed them.

According to a Yahoo News/YouGov poll from mid-June, just 17% percent of U.S. adults now say no when asked if the country is “heading for a recession.” In contrast, a combined 6 in 10 think the economy is trending in that direction (18%) or that a recession has already begun (43%).

Fact check: It hasn’t. The National Bureau of Economic Research (NBER) Business Cycle Dating Committee — the U.S. official recession scorekeeper — defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The committee has been clear: The United States hasn’t experienced a recession since the COVID-induced downturn of March-April 2020 — and it isn’t experiencing one today.

What about next quarter, though? Or the quarter after that? Or next year?

Citing the Federal Reserve’s decision to curb post-pandemic inflation by aggressively hiking interest rates — which has tended, in the past, to slow spending and trigger job losses — forecasters spent much of 2022 and early 2023 predicting an imminent economic plunge.

But then a funny thing happened on the way to the recession: Spending has continued to go up, and unemployment has continued to go down. Meanwhile, gas prices have dropped, and grocery prices have leveled off. Inflation appears to have peaked.

As a result, the same experts who used to swear up and down that a 2023-24 recession was inevitable are no longer so sure. In fact, some now think the U.S. economy may have dodged a downturn entirely.

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said Friday on CNBC that lowering inflation without a recession would be a “triumph.”

“That’s the golden path — and I feel like we’re on that golden path,” Goolsbee said.

Why there’s debate

No one can see the future — not even cable TV pundits. The post-pandemic economy continues to behave … weirdly. And there are plenty of reasons to think a recession could still be right around the corner.

History is one of them. For instance: 11 of the Fed’s last 14 raise-the-rate cycles led to a recession, according to Rosenberg Research. Those recessions always occurred after the Fed stopped hiking rates, not while the hikes were ongoing. Other traditional indicators (such as the Treasury yield curve and Conference Board’s Leading Economic Index) also signal trouble ahead.

It’s just that, traditionally, the U.S. economy hasn’t tended to add jobs (4 million over the past year) and register historically low unemployment at the same time, all while real wages increase and consumers emerge from a hugely disruptive pandemic ready to spend.

So the question really is, Will this time be different?

For what it’s worth, the Fed’s own economists have pegged the odds of a so-called soft landing — a rare rate-hiking cycle that ends without a recession — as essentially a coin toss, while also predicting that if a downturn does come, it will be “mild.”

What’s next

On Friday, the Labor Department reported that U.S. employers added 209,000 jobs in June, bringing the unemployment rate down to 3.6% (compared to 3.7% in May). It was the 30th consecutive month of gains in American payrolls — but it was also the lowest number of added jobs since the streak began.

Counterintuitively, that could be good news, recession-wise, at least for the immediate future; a solid but not roaring job market is one tentative sign of a soft landing, some experts say. Or if hiring slows dramatically, a mild recession might follow, others argue. The Fed’s next round of economic projections, scheduled for September, will be telling.


It’s time for the ‘recessionistas to admit defeat’

“Despite the year-plus in which analysts have been arguing that a recession is imminent, none of the arguments behind the predictions stand up to scrutiny. And there's only so long one can keep claiming that the recession is just six months away. Given the increasing number of reasons to be upbeat on the U.S. economy, it's time for the recessionistas to admit defeat. The economic doomsday clock has been reset. … The near-term recession risks are fading rapidly. There will be no recession in the next six months, and it's increasingly likely that we won't see one in the next year, either.” — Neil Dutta, head of economics at Renaissance Macro Research, in Business Insider

The signs of a soft landing are growing.

“For some time now, prominent economists have warned that the only way to break the fever of inflation would be by pumping up unemployment — in other words, by triggering a recession. Former Treasury Secretary Lawrence Summers, for example, predicted last summer that we would need five years of unemployment above 5 percent. Against that backdrop, every strong jobs report came to seem, perversely, like bad news — an omen of greater financial pain to come. And yet according to the most recent official numbers, inflation has cooled significantly since last summer, even as the unemployment rate has remained low. … A recession is looking less and less likely, let alone necessary.” — Adam Ozimek, Atlantic

If we avoid a recession, Black and Latino workers will be one big reason why.

“Fewer White people are employed now than pre-pandemic. In contrast, over 2 million more Hispanics are employed now, over 800,000 more Asian Americans and over 750,000 more African Americans. … It’s also notable that over 2 million more foreign-born people are employed now than before the pandemic. This means that more than half of the new workers have been immigrants. If the U.S. economy ends up having a soft landing, it will largely be because immigrants and people of color have kept entering the labor force — helping to keep production going, consumption solid and wage growth (and inflation) cooling to a more sustainable level.” — Heather Long, Washington Post

Wary of positive government data? Independent numbers confirm the good economic news.

“Consider, for example, the National Federation of Independent Business’s survey of small businesses, which still shows that many of them intend to expand their workforces. Or consider surveys of purchasing managers, which are often used as early warning indicators of economic change. These surveys look a bit less favorable than either the official data or small-business indicators, but still aren’t signaling anything that looks like a recession. Claims for unemployment insurance — which represent data collected by states, not the federal government — also point to a still-solid labor market. It’s probably worth noting that private surveys confirm official reports of rapidly declining inflation as well. … A recession might eventually happen, but it isn’t happening now.” — Paul Krugman, New York Times

Not so fast: The fundamentals still suggest a downturn ahead.

“These days, it costs more money to carry a credit card balance, sign a personal loan, or borrow to buy a car. And until the Fed lowers its benchmark interest rate, consumers might continue to struggle. The fear, however, is that persistently higher borrowing costs will drive consumers to start spending less money. If broad spending declines to a notable degree, it could be enough to fuel a recession. And that might happen even if the Fed opts not to raise interest rates at its next meeting this year.” — Maurie Backman, Motley Fool

Maybe this will be a different kind of recession altogether.

“When different sectors of the economy take their turns contracting, with some declining while others keep expanding, it’s sometimes called a ‘rolling recession.’ The economy as a whole manages to avoid a full-fledged recession. … It’s also true that the bulk of high-profile job losses that began last year have been concentrated in higher-paying professions. That pattern is different from what typically happens in recessions: Lower-paying jobs, in areas like restaurants and retail, are usually the first to be lost and often in depressingly large numbers. … Many of the affected employees are well-educated and likely to find new jobs relatively quickly, economists say, helping keep unemployment down despite the layoffs.” — Christopher Rugaber, Associated Press

And even if a regular old recession does come, it’s likely to be mild with real upside for investors.

“You've got a deeply inverted yield curve and banks are starting to tighten lending standards, so you'd be naive to think that there's not an economic downturn coming. [But] if you go back historically and you look at the more mild recessions, like in 1981, like in 1991, stocks tend to decline 20% to 25% and hit a new high within one or two years. And that seems to be precisely the path that we're following right now.” — Brian Levitt, Invesco Global Market Strategist, to Yahoo Finance