Crypto News: The pre-recession

Hello. Today we look at the US recession debate, a sudden switch in America's growth prospects versus China's and how the US labor market may not be as tight as many think.

There's universal agreement the US economy is turning, and most economists see a recession as the price to pay for actions to pull down decades-high inflation.

Agreement ends there — as was crystal clear in the fierce debate that erupted in the wake of Thursday's second-quarter gross domestic product report.

The data showed an unexpected 0.9% annualized contraction in the economy, after a 1.6% decline in the first three months of 2022.

Here's a sampling of the variety of reactions:

President Joe Biden rebutted Republican recession claims by touting job growth
Treasury Secretary Janet Yellen termed it a "slowdown" that was indeed what's needed to bring down inflation
Federal Reserve Chair Jerome Powell, on the eve of the release, said the US isn't in a recession now
Republican Senator Rick Scott, chair of his party's November midterm election campaign committee, said "Biden has officially plunged America into a recession"
Bank of America CEO Brian Moynihan assured, during a White House visit Thursday, that consumers remain in solid shape

GDP data are particularly awkward and prone to different interpretations, in contrast to narrower indicators such as retail sales or industrial output.

Booming imports, propelled by strong domestic demand, count against GDP — and that largely caused the first-quarter slide. Rising inventories boost GDP, but only if their growth accelerates — which they didn't last quarter; a slowdown there more than explains the latest drop.

The so-called "technical recession" definition of two consecutive declines in GDP isn't the official criterion, as Steve Matthews wrote here.

Setting the terminology aside, Thursday's figures showed that almost everything contracted in the April-to-June quarter — exports and consumer spending on services were the only two major categories to show an expansion.

"The economy is clearly losing momentum," said Michael Feroli, chief US economist at JPMorgan Chase. "All the interest-sensitive categories of final demand — housing, consumer durables, and business spending on equipment and structures — contracted last quarter."

Molly Smith and Olivia Rockeman explain in further detail here how the odds of a recession, however you measure it, are mounting as households and companies succumb to the weight of elevated inflation and rising interest rates.

And as Alex Tanzi says here we should also be monitoring what computers are saying about the state of the economy rather than the humans.

So, perhaps we can call the current status the "pre-recession."

—Chris Anstey

Got tips or feedback? Email us at ecodaily@bloomberg.net

One casualty of the soft GDP print is President Biden's bragging rights that his economy would outpace China this year for the first time since 1976.

Biden highlighted that on a trip to Asia in May, and his national security adviser, Jake Sullivan, called it "a quite striking example of how countries in this region should be looking at the question of trends and trajectories."

It's now looking unlikely. Bloomberg Economics as of mid-May projected China would expand 2% this year, against 2.8% for the US. Reflecting a better-than-expected second quarter for China, and mounting evidence of a slump in the US, the team now sees 3.6% for China and 1.5% for the US.

Still, Biden can boast of per-capita incomes more than five times China's if plans for a face-to-face meeting with President Xi Jinping come together.

Europe economy |The euro-zone economy expanded by more than three times the amount economists expected in the second quarter, but Germany stalled and regional inflation surged by a record pace in July.
The inflation miss | Charts show just how much central banks failed to spot the longevity of the inflation surge. We look at the fallout from that flop.
Tech troubles? | South Korea's semiconductor stockpiles expanded at the fastest pace in more than six years, adding to concern about the outlook for exports that drive the country's economic growth.
Idle cash | China's top leadership is committing to ample liquidity as the nation contends with a slowdown. So far, a lot of that cash is sitting in the financial system instead of being transmitted to the real economy.
Swiss-Russia trade | Swiss exports to Russia of turbojets, air pumps and other machinery surged in the past two months as manufacturers raced to fill any orders signed before sanctions render some of the sales illegal.
Argentine chaos | Argentina's President Alberto Fernandez unveiled an empowered economy minister with the mission to fix enormous political and economic problems, including inflation estimated at 90% this year.
Kenya votes |Kenyans will head to the polls on Aug. 9 to choose a new president in a contest pitting fifth-time contender Raila Odinga against a challenger who's anchored his campaign on a rags-to-riches story.
Nonmonogamy | Handling multiple bosses apparently isn't that different from managing multiple lovers.

The conventional wisdom that the US labor market is tight is being challenged in a forthcoming paper.

Economists David Blanchflower and Alex Bryson note that low unemployment rates and high rate of vacancies-to-unemployment lead many economists to warn there is a risk of growth in wages pushing up inflation

But they calculate that inflation-adjusted wages are falling rapidly and that unemployment is not key to understanding the direction of pay.

They instead argue better metrics are:

Under-employment, the percentage of workers with part-time hours who would prefer more hours
The rate of non-employment which includes both the unemployed and those out of the labor force who are not working

Both "significantly reduce wage pressures," Blanchflower and Bryson write. "The implication is that the reserve army of labor which acts as a brake on wage growth extends beyond the unemployed and operates from within the firm."