Is the US in a Recession?
Economists generally look at three factors to determine whether we are in a recession: economic output, consumer demand, and unemployment. But, is the US in a recession?
A drop in economic output is typically defined as two consecutive quarters of falling GDP. The United States met this goal by lowering GDP in the first and second quarters of 2022. Nonetheless, consumer demand was positive, and unemployment fell to pre-pandemic levels in the first two quarters of 2022.
However, unemployment rose in August. The recent increase in unemployment does not necessarily indicate that we are in a recession, but that could change quickly. The jobs report on Friday will undoubtedly move the market, but will it have the far-reaching effects that we anticipate? Here’s what investors should be aware of.
August was the largest increase in unemployment since April 2020.
The unemployment rate increased from 3.5% to 3.7% in August 2022. This is the highest increase in unemployment since April 2020, yet it is not a reason for concern. The rise isn’t quite as significant—0.2 points in August 2022 vs. 10.3 points in April 2020—and the conditions are entirely different.
The unemployment rate is not calculated using unemployment insurance statistics. Instead, the Current Population Survey measures it (CPS). This monthly government poll includes those who have filed for unemployment. Still, it also includes people actively seeking work but is not yet employed and may not be receiving unemployment benefits.
The August 2022 unemployment increase may be ascribed in large part to the 786,000 Americans who are now able to seek work but have not yet done so.
Understanding Unemployment in a Broader Sense
The figures demonstrating that more individuals are joining the labor field do not reflect the complete picture of unemployment. COVID-19 and its social effects have distorted the statistics somewhat.
Those who are unable to work are not included in unemployment statistics. There are presently between two and four million Americans out of work due to “long COVID,” with tens of thousands of new infections occurring daily.
According to the NCHS, more than 350,000 working-age individuals have died from COVID-19 since the outbreak began, exacerbating the labor shortage.
The Biden administration unexpectedly halted enhanced unemployment benefits in September 2021, denying compensation to an estimated 7.5 million unemployed people.
Nineteen states interpreted federal government pronouncements in the summer of 2021 as authority to terminate their programs early, with the earliest program terminations occurring in June of 2021.
From June to October 2021, the unemployment rate fell from 5.9% to 4.6%, with a fraction of the 7.5 million unemployed accounting for this reduction. Many of them were unable to find a job; therefore, they were excluded from the unemployment statistics.
Is the Labor Market Robust?
Currently, work is plentiful. We are in a tight global labor market, implying that more jobs are available than employees to fill them. But then does this answer the question: is the US in a recession?
The total loss of available employees owing to COVID-19 and its accompanying impacts likely accounts for some of the rises in employment availability. This is not often considered when discussing tight labor markets, yet we live in unique times.
In a perfect world, a tight labor market would benefit employees. It would imply that they would be able to demand more salaries, greater flexibility, and improved benefits. Unfortunately, it is not what we observe.
Many businesses have begun to reduce job postings or halt the recruiting process. This is a concerning trend that might influence the economy or push us closer to a recession in the future, but for the time being, employment numbers seem to be rather healthy on the surface.
What is the Current Relevance of Employment?
Current employment data show that the labor market may be easing somewhat, with more available workers in the workforce. It has to be seen if this translates into individuals having solid employment with stable income in the present inflationary climate.
The causes for the increase in unemployment are encouraging, but America’s economic health is precarious.
The Federal Reserve is attempting to contain inflation by rapidly raising interest rates. When interest rates climb rapidly, there is a significant probability that employment will suffer as businesses tighten their belts. A high currency also hurts the earnings of multinational corporations headquartered in the United States, boosting pressure to increase profits.
Unemployment rates will likely grow as the economy cools after a massive overheating. Hopefully, we can accomplish the Fed’s desired “soft landing.” Many experts emphasize the relevance of pay statistics above employment numbers. According to the August employment data, average hourly salaries have climbed 5.2%, down from 5.6% in March 2022. The Fed will have to be more forceful in tamping down inflation if wages fall too far behind inflation, which means the price of the products we all need. It’s an interesting issue, but whether it’s more essential than the number of people working is debatable.
Author Okoro Chinedu 
