U.S. will ‘enter a recession in the third quarter of 2023,’ economist says

we also got to talk about some economic data the U.S GDP increased at an annual rate of 2.6 percent in the fourth quarter of 2022. that figure is adjusted for inflation or known as real GDP the reading comes ahead of the fed's preferred inflation gauge tomorrow that's core pce all of this coming as Bond King Jeffrey gunlock warned earlier this week it's only a matter of months before the U.S tips into a recession here to discuss the state of the U.S economy is David Doyle Macquarie group head of Economics David it seemed like it's been only a matter of months until we dip into a recession for several months if not a full year now at this point so you know if it does and when it does happen how shallow mild severe a recession should we be bracing for now that the calls are getting a little bit louder yeah so um our view uh has been for some time that you will confront a recession in 2023 uh it looked like late last year that it could occur at the start of the year um so in the first quarter but the data inflected uh you know higher over January and February and we saw some improvement and so our current Baseline is that you'll you'll enter a recession in the third quarter of of 2023 we suspect that that will be about a one and a half percent Peak Patra contraction in Real GDP over the course of about four quarters or so that's about equivalent to what occurred in the 1990 91 episode so I would call it a true recession but something that's not quite as severe as we saw in for example 2008 uh 2009 where real GDP contracted by more than three percent and it occurred over over the course of a year and a half um as our miles oddland wrote in this morning this morning brief David and sort of as Brad alluded to um we've seen this recession coming for six months for the past year or the past nine months in other words you know and as you said you predicted it before this has been broadly forecast right does that have any implications for the type of recession it could be in other words is there danger of talking ourselves into a recession or on the flip side do we mitigate the recession by expecting it so much yeah well certainly the this is there's heightened expectations um I would say this time around for a recession and it's possible that you know folks like myself that are out there talking about the potential recession are part of what causes the recession uh to occur there certainly is a lot of psychology that goes into these things we've seen weakness broadly across the data so here at Macquarie we we have a suite of leading indicators that we follow and track that give us a gauge or a guide as to whether or not we should be fearful of recession those started to signal that a recession could be potentially on the horizon in April of last year but it looked at that point that it would be you know at least nine to 12 months away uh and what's happened is that what we haven't seen yet is the spillover into the labor market that has historically occurred at this point in time we still suspect that that it would become that it's on the horizon that it's coming you still see signs of that beneath the surface in the labor Market data but there's still a range of outcomes right so it could be that the recession that we're looking for starts in the second quarter it could be in the fourth quarter but our base case right now is the third quarter of 2023 and that's where the data in aggregate point us towards as being the most likely starting point well but wouldn't that assume that you see not only on in within the employment situation not only a wave of even more head count reductions across companies and across Industries but on the other side a wave of the open positions also being retracted at the same time because that would that would be the true tightening there on the employment situation front yeah so it's it's layoffs it's a deterioration in corporate hiring uh I'm sure we've seen some moderation in the job openings data um some of the private sector data shows a greater moderation than what you would get from the government's Joel's report for example um but but we see that you see it beneath the thirds in the day so one thing that that we look for is is unemployment bottomed or his unemployment trough and it's been a couple of months now since we've seen on the unemployment rate on a smooth basis reach a new low that's typically a warning sign that a recession is on the horizon the insured unemployment rate which is calculated off of the continuing uh job with planes numbers which come out weekly that's showing a kickoff of about 0.3 percentage points again on a smooth basis from its drop so I think you are seeing signs of a softening on the labor side it just might take you know a couple more months before we see it truly apparent in that headline data we'll be watching for it uh David Doyle thank you so much McCoy group head of economics

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Length: 5min 7sec (307 seconds)

Published: Thu Mar 30 2023