What in the world is a “pre-recession”? White House press secretary Karine Jean-Pierre floated out that term yesterday while denying that the US has entered a recession, apparently hoping to convince people that we’re not even close to one:
KJP: “Economic indicators…do not show that we are in a recession or even a pre-recession.” pic.twitter.com/krVl2xzQUp
— Townhall.com (@townhallcom) July 25, 2022
This new term is rather amusing, given that the White House won’t define what a recession is. I quipped on Twitter late yesterday that it’s the economists’ version of a promise ring. If a recession is undefinable in the moment, why create an even more ambiguous term?
Regardless of the definition or intent behind “pre-recession,” it seems clear that we’re getting closer to sliding into the full-blown status. For the third straight month, consumer confidence declined, this time to a one-year low level. And since 70% of the US economy is based on consumer spending, well … pre-recession promise rings, here we come:
Consumer confidence slipped for the third straight month in July as sky-high prices dampened demand for products and services, according to a new survey.
The Conference Board’s consumer confidence index, which tracks consumer attitudes and buying intentions, dropped from 98.4 percent last month to 95.7 percent in July, its lowest level since last year.
Lynn Franco, the Conference Board’s senior director of economic indicators, said in a statement that the survey results indicate that recession risks persist.
“As the Fed raises interest rates to rein in inflation, purchasing intentions for cars, homes, and major appliances all pulled back further in July. Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months,” Franco said.
That’s not the only flashing light on consumer spending. Washington Post economics analyst Heather Long points to delays in paying bills that tend to indicate less buying power in the wake of 15 months of runaway inflation:
Early warning sign of economic trouble: People are paying their cell phone bills a few days later.
Cell phone and car bills are usually 1st to get paid.
We aren’t at alarm levels yet, but auto delinquencies r rising and people r delaying phone billshttps://t.co/5iRR4utPW0
— Heather Long (@byHeatherLong) July 26, 2022
At the same time, CNBC reports that debt has risen in “nearly half” of American households. It’s a sign that even normal expenses have become difficult to manage in the inflationary wave:
In an economy that has produced the highest inflation rate since 1981, Americans are struggling to keep up with expenses and are putting less money aside for emergencies or long-term financial goals, several recent studies show.
Nearly 40% of consumers cannot put any money at all into savings, according to a recent analysis of household financial health and readiness by the American Consumer Credit Counseling, while about 19% said they had to reduce their savings rate.
As of the second quarter of 2022, 48% of consumers said the rising cost of basic necessities impacted their family’s lifestyle, a steep jump from 39% in the first quarter.
And it will get worse before it gets better, too:
In order to make ends meet, 43% of Americans expect to add to their debt in the next six months, especially young adults and parents with young children, according to a separate study by LendingTree.
Most will rely on credit card debt to bridge the gap between what they need and what they can afford, the report found.
Already, the rise in borrowing, together with auto loans, student debt and mortgages, propelled total household debt to a record $15.84 trillion at the beginning of the year.
CNBC also reports that its Fed survey of economists now shows that the consensus is a recession, likely by December and of mild-to-moderate impact. That will likely be when the Fed stops tightening the monetary supply, but it will have to go a long way to catch up to the core-CPI inflation rate that the Fed usually chases. Right now the gap is about 500 basis points (5 full percentage points) off from current core CPI. That’s a lot of hiking to do to chase the inflation dragon, and with it will come a lot of damage to capital investment.
So when will a recession be declared? That’s beside the point, NY Times analyst Ben Casselman argues. Voters don’t make decisions on NBER declarations but on how they personally experience the economy, And right now …
Most economists still don’t think the United States meets the formal definition, which is based on a broader set of indicators, including measures of income, spending and job growth. But they aren’t quite as sure as they were a few weeks ago. The housing market has slowed sharply, income and spending are struggling to keep pace with inflation, and a closely watched measure of layoffs has begun to creep up.
“A month ago, I was writing that it was very unlikely that we are in a recession,” said Jeffrey Frankel, a Harvard economist. “If I had to write that now, I would take out the ‘very.’” …
Americans feel terrible about the economy right now — worse, at least by some measures, than at the peak of the pandemic-related layoffs in spring of 2020. It’s easy to understand why: The climbing cost of food, fuel and other essentials is eroding living standards. Hourly earnings, adjusted for inflation, are falling at their fastest pace in decades.
But to economists, “recession” is not just a generic term for a period of hard times. Recessions occur when the economy, as a whole, is shrinking.
Casselman followed up this point in a lengthy Twitter thread:
If we look back in a year and say a recession began in, say, May, that won’t change anything about how people experienced the economy at the time. Ditto if we ultimately conclude there was no recession.
— Ben Casselman (@bencasselman) July 26, 2022
As @TaraSinc put it: “The economy can feel bad for a range of different reasons.” An NBER-declared recession is just one of them.
— Ben Casselman (@bencasselman) July 26, 2022
An economy that erodes buying power, forces consumers to go into debt for normal expenses, and leaves them to scale down savings is not a good economy, no matter whether we call it a recession or not. And that’s the economy that Joe Biden and Democrats have delivered, and the lived experience that drives voter choice and approval and favorability ratings.