As the Federal Reserve, the nation's central bank, continues to be optimistic about combating high inflation and officials talk more and more about the need to impose some economic pain to get price pressures under control, several economists told Al Jazeera that the United States is facing rising fears of a recession.
According to Edward Moya, a senior market analyst at OANDA, a foreign currency company with headquarters in New York, "there's still a significant amount of strength in the labor market and that's going to allow the Fed to continue active in battling inflation."
Prices are still under pressure. And when we look at energy prices, the decreasing trend we've been enjoying seems to be finished, and it appears that oil and gas prices are going to be up once more, he said.
Last week, the Organization of Petroleum Exporting Countries and its partners, sometimes known as OPEC+, decided to reduce daily oil production by 2 million barrels.
"That raises expenses for everything we do and purchase, not just energy. EJ Antoni, a research scholar at The Heritage Foundation, a conservative think tank in Washington, DC, noted that as a result, the cost of everything is rising, including food.
The US economy's output of goods and services, or gross domestic product, shrank by 0.6 percent in the third quarter after declining by 1.6 percent from January to March. Two consecutive quarters of declining GDP are the usual threshold for a recession.
"We've already experienced a recession in the year's first half. The third quarter seemed to be going in the right direction, but after that, anything could happen. We may go negative once again, Antoni said.
That opinion has not been shared by all economists because some signs hint to the economy's underlying strength.
August saw the US trade imbalance at its lowest point in more than a year. And last week, Goldman Sachs increased its forecast for the US third-quarter GDP by a whole percentage point, to 1.9 percent annualized.
As evidence of the economy's resiliency, the Biden administration continues to cite the lowest unemployment rate in fifty years as well as consumers' unbroken confidence.
However, according to a recent survey by the New York-based financial firm Bankrate, over seven in ten Americans said they are concerned about a recession and four in ten said they are not financially equipped to endure one if it occurs before the end of 2023.
What do the main metrics indicate, then? How do economists reconcile declining markets with a robust labor market? What impact would a US recession have on the world economy?
most CEOs predict a recession in the upcoming year.
According to a recent survey by the accounting company KPMG, more than eight out of ten CEOs believe a recession would occur within the next 12 months (PDF). 73% of the 1,300 CEOs of the largest corporations in the world surveyed by KPMG agreed that a recession will impede growth.
According to KPMG, almost 39 percent of CEOs have implemented a hiring freeze and 46% are considering cutting their workforce within the next six months.
Additionally, they find it challenging to ignore the evidence.In the last year, Wall Street has fallen drastically. The S&P 500, a gauge of the health of 401(k) and 529 plans, ended the third quarter at its lowest point in over two years. The Dow Jones Industrial Average has down more than 20% so far in 2022, while the tech-heavy Nasdaq 100 has fallen close to 33 percent.
The price and popularity of cryptocurrencies, which soared during the outbreak, have also plummeted. The value of the second-largest cryptocurrency, Ethereum, fell by 61 percent, while the top digital coin, Bitcoin, lost more than 60 percent of its value in the past year.
Since last year, US mortgage rates have more than doubled, preventing millions of Americans from becoming homeowners.
If the Fed, Congress, and president had taken action much earlier, "we may have had a light, brief recession, but unfortunately, there's a significant amount of economic suffering that's already baked into the cake," Antoni told Al Jazeera.
"Having the advantage of hindsight was one of the tragedies of the Biden administration. Instead of continuing with terrible policies, they could have looked back to their immediate predecessor and learnt from what worked and what didn't.
A robust or "desperate" labor market?
At the height of the pandemic, tens of millions of Americans left their employment in what is now referred to as the Great Resignation. Since then, businesses ranging from petrol stations to medical offices have had trouble filling positions.
According to Moya of OANDA, the Fed will keep raising interest rates to make borrowing more expensive in an effort to balance supply and demand as long as job opportunities are high.
He continued, "The Fed will be forced into a corner where they must tighten policy considerably more aggressively.
The number of job vacancies in the US fell by 1.1 million last week, according to new data, and the number of unemployment claims rose more than anticipated. Although the unemployment rate fell to a half-century low of 3.5% in September, this indicated a tight labor market.
But not everyone holds that viewpoint.
The Heritage Foundation's Antoni told Al Jazeera, "I don't see a vibrant labor market, I see a desperate labor market." A disproportionately large number of people in our society hold numerous occupations. That inflates the employment figures since each person who holds a job is added to the total.
"Many small firms have failed as a result of pandemic lockdowns, and if those individuals work for a large corporation now, they are included in those polls. Therefore, even though the number of jobs hasn't changed, the survey's total of employed people has increased, according to Antoni.
global reversals
According to a recent statement from the World Bank (PDF), the COVID-19 pandemic and the conflict in Ukraine have brought about "extraordinary shocks" to the global economy, thereby halting efforts to eradicate extreme poverty by 2030.According to the World Bank, the number of people surviving on less than $2.15 a day climbed by 11% in 2020, rising from 648 million to 719 million.
According to Richard Kozul-Wright, director of the globalization division at the United Nations Conference on Trade and Development (UNCTAD), a US recession would be extremely painful for the developing world.
Last week, the UN agency issued a grave warning that a global recession may cause more harm than the 2008 financial crisis and the COVID-19 shock combined.
Kozul-Wright stated, "If a financial shock in the US is triggered, there is no limit to the downside.""If it can find the political stomach for future bailouts, the US eventually has the policy flexibility to support both its banking system and its economy. However, the majority of nations, particularly those in the South, lack any sort of meaningful safety net, he continued.According to OANDA's Moya, many emerging markets have been vigorous in their battle against inflation.
He said, "This continuously strong dollar is what's been killing them. "The days of the dollar are numbered if the US experiences a recession. Additionally, some respite might be beneficial for developing markets.
But once more, it's a very thin line. Emerging markets will experience difficulties if the US experiences a protracted period of slow development. Significant US exporters like China, Mexico, and Canada would suffer if US demand declined for an extended period of time.
Moya mirrored the concerns of several economists Al Jazeera spoke with over the potential severity of a US recession, saying: "It's still too early to have great conviction with that judgment simply because we don't know exactly how sticky inflation is going to be and how resilient the economy is."
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