Is recession looming?

[vand]

I find it difficult to imagine how the rocketing energy and general prices aren’t going to tip us into a recession within,well, let’s say a year.

Both the GFC and the 74 crash were preceded by a large surge in energy and consumer prices. It’s easy for people who have no first hand experience of those events, especially the 1970s, to think that we could never experience it again.

Recessions are always multi-factoral and so just blaming it on one thing is overly simplistic, but sometimes it is clear what breaks the camel’s back, and I think that $130 oil and £1.70 petrol, and doubling utility prices will do it.

The yield curve has also been flattening at an alarming rate and could move to inversion within a few weeks at the rate it’s going. That would surely be the nail in the coffin.

I know that GDP and employment numbers still all look very healthy, but those are lagging indicators... and I remember that in the run up to the GFC they were also very strong, but got revised backwards when the recession started to make it look like the downturn began a couple of quarters before everyone realised they were in fact in a downturn.

[BT63]

Yes, I think recession is coming. Even before war broke out I was expecting recession by the end of this year, long before interest rates caught up with the level of inflation.

Recession could also bring down inflation due to lack of demand unless wage rises keep up (will we see a return of the unions?).

But what happens if central banks add more stimulus to try to pull us out of recession? Stagflation?

[GoSeigen]

I find it difficult to imagine how the rocketing energy and general prices aren’t going to tip us into a recession within,well, let’s say a year.

Both the GFC and the 74 crash were preceded by a large surge in energy and consumer prices. It’s easy for people who have no first hand experience of those events, especially the 1970s, to think that we could never experience it again.

Recessions are always multi-factoral and so just blaming it on one thing is overly simplistic, but sometimes it is clear what breaks the camel’s back, and I think that $130 oil and £1.70 petrol, and doubling utility prices will do it.

The yield curve has also been flattening at an alarming rate and could move to inversion within a few weeks at the rate it’s going. That would surely be the nail in the coffin.

I know that GDP and employment numbers still all look very healthy, but those are lagging indicators... and I remember that in the run up to the GFC they were also very strong, but got revised backwards when the recession started to make it look like the downturn began a couple of quarters before everyone realised they were in fact in a downturn.

Will there be a recession? Yes. But if you think this is a 1970s scenario you're barking in the wrong park.

GS

[pje16]

Recessions are self fulfilling prophecies
The public hears predictions that one is coming
that makes them not spend so much as "bad" times are coming
the economy contracts as a result
just my whimsical musings

[jackdaww]

.

i have no idea .

but i am baffled that the markets have held up this far.

[vand]

I find it difficult to imagine how the rocketing energy and general prices aren’t going to tip us into a recession within,well, let’s say a year.

Both the GFC and the 74 crash were preceded by a large surge in energy and consumer prices. It’s easy for people who have no first hand experience of those events, especially the 1970s, to think that we could never experience it again.

Recessions are always multi-factoral and so just blaming it on one thing is overly simplistic, but sometimes it is clear what breaks the camel’s back, and I think that $130 oil and £1.70 petrol, and doubling utility prices will do it.

The yield curve has also been flattening at an alarming rate and could move to inversion within a few weeks at the rate it’s going. That would surely be the nail in the coffin.

I know that GDP and employment numbers still all look very healthy, but those are lagging indicators... and I remember that in the run up to the GFC they were also very strong, but got revised backwards when the recession started to make it look like the downturn began a couple of quarters before everyone realised they were in fact in a downturn.

Will there be a recession? Yes. But if you think this is a 1970s scenario you're barking in the wrong park.

GS

Can you make an argument why it wouldn't it be a rerun?

We've created so much more currency than ever before, much greater than the true rate of growth in goods and services. Debt is much worse today than it was in the 1970s, therefore governments need the inflation to pay their promises.

For sure, a recession may prove to provide some deflationary relief, but then the monetary tools they will use to stimulate the economy will then sow the seeds for ongoing inflation in the next cycle.

The unfortunate dynamic is that once you left inflation run away, it tends to run and run until you tackle it head-on and get in front of it. It took Paul Volker to raise interest rates to very painful levels to kill the stagflation era - knowing that it would cause a deep recession, but that was the necessary price to pay to get ahead of inflation - do you see anyone who's willing to do the same today? Right now they're scared to raise interest rates by even a few basis points!

[vand]

On a personal level our household is already in recession, as our wages are not keeping up with the headline rate of inflation, therefore our purchasing power is falling.

I imagine it's the same for most households - you can't have living standards falling over long periods and and expect the macro numbers to continue to print positive reading.

The whole selling point of "positive economic growth" is that it raises the purchasing power of wages for people and therefore increases living standards.. one without the other is nonsensical.

[pje16]

On a personal level our household is already in recession, as our wages are not keeping up with the headline rate of inflation, therefore our purchasing power is falling.

I don't see that as a definite sign of recession
a lot of people have savings they can fall back on, or can reduce spending to compensate
That is my view and NOT a dig

[vand]

On a personal level our household is already in recession, as our wages are not keeping up with the headline rate of inflation, therefore our purchasing power is falling.

I don't see that as a definite sign of recession
a lot of people have savings they can fall back on, or can reduce spending to compensate
That is my view and NOT a dig

If I consume 100 Starbucks lattes a year but prices rise so I have to cut that down to 75 then I'm worse off. My consumption of lattes and therefore my standard of living has fallen by a quarter.

Consuming less because you can't afford to consume as much as before is the very definition of falling standard of living. Savings has nothing to do with it. Maybe I should sell my house to maintain my standard of living?

[pje16]

Sorry - I seem to have hit a nerve
perhaps you've had too much coffee
Saving could also mean switching lights and other things off or getting better deals on your mobile, tv, broadband, insurnce etc ie not wasting so much

[vand]

Sorry - I seem to have hit a nerve
perhaps you've had too much coffee
Saving could also mean switching lights and other things off or getting better deals on your mobile, tv, broadband, insurnce etc ie not wasting so much

The logical extension to your reasoning is that you can maintain the same standard of living whilst reducing your budget down to £0, voila - 0 x 100 is always zero, so if you have no living costs then you aren't affected by inflation!

Of course the real world doesn't work like that.

I have already long practiced all those things you suggest - my financial house is in good order.. but it remains true that my wages are not keeping up with inflation.

[pje16]

I have already long practiced all those things you suggest - my financial house is in good order.. but it remains true that my wages are not keeping up with inflation.

Good chap
you and me both

All I was trying to say was that wages not keeping up with inflation is not my defintion of a recession
I'm not sure what is but it's not that !
cheers

[GoSeigen]

I find it difficult to imagine how the rocketing energy and general prices aren’t going to tip us into a recession within,well, let’s say a year.

Both the GFC and the 74 crash were preceded by a large surge in energy and consumer prices. It’s easy for people who have no first hand experience of those events, especially the 1970s, to think that we could never experience it again.

Recessions are always multi-factoral and so just blaming it on one thing is overly simplistic, but sometimes it is clear what breaks the camel’s back, and I think that $130 oil and £1.70 petrol, and doubling utility prices will do it.

The yield curve has also been flattening at an alarming rate and could move to inversion within a few weeks at the rate it’s going. That would surely be the nail in the coffin.

I know that GDP and employment numbers still all look very healthy, but those are lagging indicators... and I remember that in the run up to the GFC they were also very strong, but got revised backwards when the recession started to make it look like the downturn began a couple of quarters before everyone realised they were in fact in a downturn.

Will there be a recession? Yes. But if you think this is a 1970s scenario you're barking in the wrong park.

GS

Can you make an argument why it wouldn't it be a rerun?

Many! There actually are a few decades of history before the 1970s believe it or not.

1. By the 1970s government debt had been declining for decades.
2. By the 1970s huge swathes of the economy had been nationalised.
3. In the 1970s yields of almost all debt was not zero or close to it.
4. By the 1970s there had been decades of significant inflation (much greater than current CB targets of 2%)
5. In the 1970s strike days were not at all-time lows.
6. The 1970s followed decades of strong economic growth.

It would be hard to find a time in recent history that was more different to the 1970s in fact.


GS

[BullDog]

Yes. Probably stagflation for some period at least.

Fully agree. Echoes of 1970's for certain.

[Charlottesquare]

I think it is somewhat difficult to consider say high energy prices and extrapolate how these will impact when frankly few of us have any idea if said prices are a short term or long term economic manifestation. We also need to consider which producers will ramp production and accordingly settle back any oil price peaks.

After all tomorrow Vlad could enter serious de escalation talks or could alternatively take it nuclear, in which latter case not sure many of us will be that fussed re oil/fuel prices (Except Mad Max, The Road Warrior, of course)

[MDW1954]

All I was trying to say was that wages not keeping up with inflation is not my defintion of a recession
I'm not sure what is but it's not that !
cheers

The formal definition (in the UK, at least) is two consecutive quarters of negative GDP growth.

MDW1954

[77ss]

All I was trying to say was that wages not keeping up with inflation is not my defintion of a recession
I'm not sure what is but it's not that !
cheers

The formal definition (in the UK, at least) is two consecutive quarters of negative GDP growth.

MDW1954

Quite. A recession is not defined in terms of living standards or inflation. On the definition given by MDW we had a recession in 2020-2021 - with 5 such successive quarters.

Is another one coming down the pike? I don't know, and I am not sure that fretting about it is any help - que sera, sera.

THe 1956 to date time series may be of interest:

https://www.ons.gov.uk/economy/grossdom ... s/ihyr/pn2

[vand]

It is of course true that technically a recession is defined as 2 consecutive quarters of negative growth.
Nobody knows this better than the governments who can and do then increase public expenditure to keep output rising in order to stave off a technical recession. Whether or not that then actually raises living standards is debateable. You can raise GDP by digging holes in the ground and refilling them.. the Soviet Union did this for decades and produced some truly spectacular “growth” numbers that seemed too good to be true because it was too good to be true..

My personal preferred somewhat facetious definition is:

A recession is when you neighbour loses his job.. a depression is when you lose your own job.

[vand]

The danger of placing too much emphasis on the easily measurable macro aggregates:

http://www.autentico.org/oa09330.php

[Nimrod103]

On a personal level our household is already in recession, as our wages are not keeping up with the headline rate of inflation, therefore our purchasing power is falling.

I don't see that as a definite sign of recession
a lot of people have savings they can fall back on, or can reduce spending to compensate
That is my view and NOT a dig

If I consume 100 Starbucks lattes a year but prices rise so I have to cut that down to 75 then I'm worse off. My consumption of lattes and therefore my standard of living has fallen by a quarter.

Consuming less because you can't afford to consume as much as before is the very definition of falling standard of living. Savings has nothing to do with it. Maybe I should sell my house to maintain my standard of living?

Surely cutting the number of coffees you buy, is how recessions start. The barista loses his job and falls behind with his rent. The coffee shop closes. And so on. Somebody benefits from the high oil prices - the oil companies and the Saudis. They spend more on exploration (if they are allowed) or armaments, and expenditure finds its way back into the World economy with a lag. But that lag creates the recession.
This time around, it is not just high oil and gas prices, but all the other things which come from Russia and Ukraine, nickel, paladium, wheat etc. This is going to affect the World economy in ways it is very hard to judge at present. But I would have thought a recession is already baked in.