The US economy is cooling considerably and will likely slide into a recession before the end of the year, The Conference Board warned this week.
The nonprofit business organization said Thursday that its leading economic index, which tracks 10 indicators designed to gauge the health of the economy, fell 0.4% in July, on top of a 0.7% drop in June.
The gauge has now fallen for five consecutive months, “suggesting recession risks are rising in the short term,” said Ataman Ozyildirim, senior director of economics at The Conference Board.
“Consumer pessimism and stock market volatility, as well as slowing labor markets, home construction and new manufacturing orders suggest economic weakness will intensify and spread more widely around the world.” united states economyOzyildirim said. “The Conference Board projects that the US economy will not expand in the third quarter and could lead to a brief but mild recession by the end of the year or early 2023.”
The index foreshadows economic developments in about seven months.
Gross domestic product (GDP), the broadest measure of goods and services produced in the country, also fell for two consecutive quarters, with the economy contracting 1.6% from January to March and falling another 0.9% in the period from April to June. .
Recessions are technically defined by two consecutive quarters of negative economic growth and are characterized by high unemployment, low or negative GDP growth, falling incomes and slowing retail sales, according to the National Bureau of Economic Research ( NBER, which tracks recessions.
The decline in economic growth in the second quarter meets the technical, but unofficial, criteria for a recession, which requires a “significant decline in economic activity that spreads across the economy and lasts more than a few months.” Still, the NBER, the semi-official referee, may not confirm it right away, as it normally waits up to a year to call it.
The NBER has also emphasized that it relies on more data than GDP to determine whether there is a recession, such as unemployment and consumer spending, which remained strong in the first six months of the year. It also takes into account the depth of any decline in economic activity.
There are mixed signals about the health of the economy, fueling the debate about the state of the economy: The number of Americans filing for unemployment benefits has gradually increased, businesses have announced layoffs or hiring freezes, and the housing market is shrinking. weakening.
At the same time, unemployment fell to a near-record low of 3.5% in July, and consumers continue to spend heavily, despite blistering inflation.
Economists remain divided on whether or not the economy is officially in a recession, but they generally agree that avoiding a recession in the near future will be next to impossible as the Federal Reserve tries to control inflation by cooling consumer demand. Policymakers approved a second 75 basis point interest rate hike in July, triple the usual size, and have indicated that another oversized rate hike is on the table in September, depending on upcoming data. economic.
Rising interest rates tend to create higher consumer and business loan rates, which slows the economy by forcing employers to cut spending. Mortgage rates have almost doubled from a year ago, while some credit card issuers have increased their rates to 20%.
Federal Reserve Chairman Jerome Powell has said that tackling inflation remains the central bank’s number one priority, even if it means risking a recession, though he stressed last month that he doesn’t think the The United States is currently in a recession.
“We think it’s necessary to slow growth,” Powell said in July. “In fact, we think we need a period of below-potential growth to create some slack so the supply side can catch up.”