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Can the economy avoid recession despite Fed hikes?


Joe Shamie is hearing a lot of talk about the impending recession. But his work just doesn’t feel like it.

Shamie is looking forward to a decent holiday season for Delta Children, a company that sells strollers, cribs, cribs and other baby furniture. He promoted the clean-up of global supply chains and the gradual relaxation of borders. From its headquarters in New York, it has no plans to cut staff and will hire more people if the right candidates come along.

“People and businesses create self-fulfilling prophecies: you expect the worst, you end up creating the worst,” Shami said. “I laugh because sometimes I sit with some of my friends and talk about how bad it is. And I say, “We’re in a nice restaurant, we’re spending tons of money.” I look around and say, “Ah, things don’t look so bad. You still complain.” “

Tech layoffs are a sign of a slowing economy, but not yet a recession

The same divide permeates the entire economy, as people prepare for the impending recession — but don’t yet feel it in their daily lives. The overwhelming consensus among economists and Fed watchers is that the country is headed for recession. Experts have good reason for the doom and gloom: The Fed is in the middle An all-out effort to lower dangerously high inflation, raising interest rates at the most aggressive pace in decades. On Wednesday, Federal Reserve Chairman Jerome H. Powell will speak at the Brookings Institution, expected to reinforce the Fed’s commitment to taming inflation while setting the stage for smaller rate hikes in the coming weeks and months.

Still a scary recession didn’t come Important pillars of the economy have remained remarkably strong since the Fed began aggressively raising interest rates in March. The economy grew in the third quarter after contracting in the first half of the year. Gas prices are falling. Companies are still eager to hire workers. For many businesses and households planning for the future, a slowdown does not seem inevitable.

Powell and his colleagues say they will be guided by economic data and offer plenty to analyze this week. New government figures for October are released on Wednesday, and the November jobs report is released on Friday. But for months, the Fed’s resounding message has made it clear that officials will not stop until prices return to normal levels, and as a result, the chances of avoiding a recession are shrinking.

New York Fed President John Williams told reporters on Monday: “With only modest base growth this year and next year, adverse effects on the global economy or our economy could clearly push us into a recession.” “I hope not. But given all the uncertainty in the global economic outlook, this is an obvious risk.”

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For now, however, observers see more and more reason to hope that a painful recession will not follow.

Last week, the Organization for Economic Co-operation and Development, an international group, said the global economy should avoid recession next year, although European economies will still slow significantly as Russia’s intervention in Ukraine continues to push up energy prices.

Earlier this month, Goldman Sachs’ chief economist put the probability of a US recession next year at 35 percent – well below other forecasts so far. The thinking is that growth will slow but remain positive; the labor market can avoid massive layoffs; wage growth may decrease; and inflation may return to more normal levels.

“We still see a very plausible, non-recessionary, four-step path from today’s high-inflation economy to the low-inflation economy of the future,” Goldman’s Jan Hatzius said in an analyst note.

Despite the Fed’s interest rate hikes, the labor market and consumer spending still haven’t cratered. Employers added 261,000 jobs in October, down from a bullish growth in the first half of the year, but still showing overall strength. Employers are desperate to hire: September job openings rose to 10.7 million from the previous month.

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Consumer spending — which typically accounts for 70 percent of economic activity — remains robust even as the holiday season begins. Retail sales rose sharply in October, according to the Commerce Department. Shoppers pay higher prices for essentials like gas and food. But they also continue to spend on things like cars, furniture and food. Consumer sentiment also improved after a sharp drop over the summer when gas prices topped $5 a gallon. Prices at the pump have fallen steadily, and the national average on Monday was $3.54 a gallon, according to AAA — down more than 10 cents from a week ago but still higher than this time last year before the Ukraine war. .

Corporate earnings calls have also improved. The number of S&P 500 companies citing the term “recession” in their third-quarter earnings calls fell 26 percent from the second quarter, according to research released Nov. 18 by FactSet.

Of course, not all parts of the economy are protected, and the full weight of interest rate hikes here and abroad won’t be felt until next year. But the housing market responded quickly. Buyer demand slowed significantly as mortgage rates rose, helping prices fall as the “For Sale” signs lengthened. Silicon Valley has also been hit by waves of layoffs and hiring freezes, including big names like Meta and Amazon (whose founder, Jeff Bezos, owns The Washington Post).

What is recession? You answered your economics questions.

No one doubts the pain high inflation inflicts on people’s budgets and the disproportionate effects felt by low-income families. More people are turning to retirement savings for cash, according to new research from Vanguard. Fiona Greig, head of global investor research and policy at Vanguard, wrote last week The recent increase in households using employer-sponsored retirement accounts “may be a sign of some deterioration in the financial health of the U.S. consumer.”

However, some economists and politicians say there is a difference between how badly people perceive the economy and how they react to it. Curtis Dubay, chief economist at the U.S. Chamber of Commerce, pointed to a paradox called “second-hand pessimism,” in which people blame the economy but don’t change their own behavior.

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“Businesses and consumers feel the economy is slowing down or not doing well, but their actions are not matching it,” Dubay said. “Consumers are continuing to spend. … On the business side, they’re saying, ‘The economy is bad and it’s going to get worse, but our concrete situation is good.’ “

Inflation may well explain this gap. High prices and the central bank’s struggle to tame them bring an inevitable amount of uncertainty for families and the broader economy, said San Francisco Fed President Mary Daly.

Daly said that as he travels through his district, which spans nine western states and is the Fed’s largest by both geography and size of economy, he hears that “people’s situation feels different than their fears over there. or even what they saw there. For example, a business may have found creative ways to build its margins, but knows of others that have not.

“[Inflation] “It creates a sense of concern that the economy could collapse at any moment because everyone knows it’s unsustainable,” Daly told reporters last week. “As the Fed moves to lower it, it creates uncertainty.”

“We are in a period of high uncertainty, and this will add to the sense of foreboding,” Daly said.

Americans feel the discomfort. A closely-watched survey of consumers released this month by the University of Michigan said consumer sentiment was “burdened by rising borrowing costs, declining asset values ​​and weakening labor market expectations,” along with the continued impact of inflation.

For now, Shamie of Delta Kids is optimistic. He knows the economy can turn around quickly. Parents may have to rethink a new playset if inflation continues to rise or the economy slows sharply. However, he has stuck to his plans so far.

“Obviously there are real problems, real problems,” Shami said. “But I think people tend to push back — lay people off, lay people off, cut costs. And then it all goes back to business because the whole economy shakes out.”

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