Evelyn Reynolds

Academics and analysts have told CNBC a recession is everything from inevitable to unlikely over the last month.
The continued debate reflects a split over whether to focus on falling GDP in real terms, or strength in personal spending and the job market.
“We live in a period of multiple shocks – from Covid-19 over energy prices to political deglobalization – which make predictions extremely difficult,” one economist said.

Is the U.S. economy showing no signs of a recession or hurtling inescapably towards one? Is it in fact already in one? 
More than a month after the country recorded two successive quarters of economic contraction, it still depends who you ask. 

Steve Hanke, professor of applied economics at Johns Hopkins University, believes the U.S. is headed for a “whopper” of a recession in 2023. While Stephen Roach of Yale University agrees it will take a “miracle” for the U.S. to avoid a recession next year — but it won’t be as bad as the downturn of the early 1980s. 
Yet the Nobel Prize-winning economist Richard Thaler says he doesn’t see “anything that resembles a recession” in the U.S. right now, pointing to recent low unemployment, high job vacancies, and the fact that the economy is growing — just not as fast as prices. 
And market participants are similarly divided. 
Liz Ann Sonders, chief investment strategist at Charles Schwab, says a recession is more likely than a soft landing for the U.S. economy right now, although it may be a rotational recession that hits the economy in pockets. 
While Steen Jakobsen, chief investment officer at Saxo Bank, was clear in a recent interview with CNBC: the U.S. is not heading for a recession in nominal terms, even if it is in real terms.

Recent surveys reflect the split. A Reuters poll of economists in late August put the chance of a U.S. recession within a year at 45% (with most saying one would be short and shallow), and a Bloomberg survey put the probability of a downturn at 47.5%. 

Mixed signals 

So why the discrepancy? It depends what you focus on: gross domestic product (GDP), or the jobs market.
U.S. GDP declined by 0.9% year-on-year in the second quarter and by 1.6% in the first, meeting the traditional definition of a recession. The slump in growth was driven by a number of factors including falling inventories, investment and government spending. Inflation-adjusted personal income and saving rates also fell.
However, in the U.S. a recession is officially declared by the National Bureau of Economic Research, which likely won’t make a judgment on the period in question for some time.
What makes this time different from every other six-month period of negative GDP since 1947 has been continued strength in the jobs market. 
The closely-watched nonfarm payrolls data for August, released Friday, showed nonfarm payrolls increased by 315,000 — a solid rise, but the lowest monthly gain since April 2021.
It added to other recent releases which have shown a slowdown in private payroll growth, but a much higher rate of new job openings than expected.

William Foster, senior credit officer at Moody’s, said jobs-versus-GDP continued to be the big debate among economic commentators, against a backdrop of the U.S Federal Reserve changing quickly from an accommodative monetary policy — where it adds to the money supply to boost the economy — to a restrictive one, involving interest rate hikes in order to tackle inflation, which hit 8.5% in July.
“We’re coming out of an extraordinary period that’s not been seen before in history,” Foster told CNBC by phone. 
When making its decision, the National Bureau of Economic Research looks at real income for households, real spending, industrial production and the labor market and unemployment — and those variables aren’t giving clear recession signals, Foster said. 
“The jobs market is still struggling to hire people, particularly in the services sector,” he said.

Wider indicators

Foster also noted that households were still spending relatively strongly, albeit at a slower rate of growth, enabled by the period of accumulation of household savings during the pandemic.
However, at the recent Ambrosetti Forum in Italy, economist Joseph Stiglitz told CNBC he was concerned about the fall in real wages workers were experiencing despite the tight labor market.
As well as disagreeing on which indicators to focus on, commentators are also split on what certain sectors are showing.
Investor Peter Boockvar says the latest data on housing and manufacturing show why the U.S. will not be able to avoid a recession, with the National Association of Home Builders/Wells Fargo Housing Market Index dropping into negative territory in August.
But according to Saxo Bank’s Jakobsen: “We still have double digit increases in the rental market. That is not going to create a recession.”
“Simply, people have enough money on the balance sheet to buy an apartment and rent it out and make 20 to 30%. So [a recession] is not going to happen.”

Volatile times

There are broader reasons for the current level of debate too, said Alexander Nutzenadel, professor of social and economic history at the Humboldt University of Berlin.
“We live in a period of multiple shocks – from Covid 19 over energy prices to political deglobalization – which make predictions extremely difficult,” he told CNBC by email. 
This means the economic performance of a highly developed country such as the U.S. depends heavily on external factors. 

The current situation of “stagflation” — when high inflation and economic stagnation occur simultaneously — is historically rare, he continued, though not completely unprecedented. 
“We had a similar moment in the 1970s, but from this experience we know that monetary policy has enormous difficulties to find the right balance between fighting inflation and preventing a recession.”
Finally, he noted that the economics profession had become “much more diverse” in recent years.
“There is no ‘mainstream economics’ anymore, everything has become controversial, including theory, data and methods,” Nutzenadel said.
The very practice of having a recession officially declared by the National Bureau of Economic Research has recently been questioned by some, with Tomas Philipson, professor of public policy studies at the University of Chicago, recently asking: “Why do we let an academic group decide? We should have an objective definition, not the opinion of an academic committee.”
In any case, Philipson concluded, “What really matters is paychecks aren’t reaching as far. What you call it is less relevant.”
— CNBC’s Jeff Cox contributed to this report.

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Historian Niall Ferguson warned Friday that the world is sleepwalking into an era of political and economic upheaval akin to the 1970s — only worse.
Speaking to CNBC at the Ambrosetti Forum in Italy, Ferguson said that the catalyst required to spark a repeat of the 70s — namely inflation and international conflict — had already occurred.
“The ingredients of the 1970s are already in place,” Ferguson, Milbank Family Senior Fellow at the Hoover Institution, Stanford University, told CNBC’s Steve Sedgwick.

Historian Niall Ferguson warned Friday that the world is sleepwalking into an era of political and economic upheaval akin to the 1970s — only worse.
Speaking to CNBC at the Ambrosetti Forum in Italy, Ferguson said the catalyst events had already occurred to spark a repeat of the 70s, a period characterized by financial shocks, political clashes and civil unrest. Yet this time, the severity of those shocks was likely to be greater and more sustained.

“The ingredients of the 1970s are already in place,” Ferguson, Milbank Family Senior Fellow at the Hoover Institution, Stanford University, told CNBC’s Steve Sedgwick.
“The monetary and fiscal policy mistakes of last year, which set this inflation off, are very alike to the 60s,” he said, likening recent price hikes to the 1970’s doggedly high inflation.
“And, as in 1973, you get a war,” he continued, referring to the 1973 Arab-Israeli War — also known as the Yom Kippur War — between Israel and a coalition of Arab states led by Egypt and Syria.
As with Russia’s current war in Ukraine, the 1973 Arab-Israeli War led to international involvement from then-superpowers the Soviet Union and the U.S., sparking a wider energy crisis. Only that time, the conflict lasted just 20 days. Russia’s unprovoked invasion of Ukraine has now entered into its sixth month, suggesting that any repercussions for energy markets could be far worse.
“This war is lasting much longer than the 1973 war, so the energy shock it is causing is actually going to be more sustained,” said Ferguson.

2020s worse than the 1970s

Politicians and central bankers have been vying to mitigate the worst effects of the fallout, by raising interest rates to combat inflation and reducing reliance on Russian energy imports.
But Ferguson, who has authored 16 books, including his most recent “Doom: The Politics of Catastrophe,” said there was no evidence to suggest that current crises could be avoided.
“Why shouldn’t it be as bad as the 1970s?” he said. “I’m going to go out on a limb: Let’s consider the possibility that the 2020s could actually be worse than the 1970s.”

Top historian Niall Ferguson has said the world is on the cusp of a period of political and economic upheaval akin to the 1970s, only worse.
South China Morning Post | Getty Images

Among the reasons for that, he said, were currently lower productivity growth, higher debt levels and less favorable demographics now versus 50 years ago.
“At least in the 1970s you had detente between superpowers. I don’t see much detente between Washington and Beijing right now. In fact, I see the opposite,” he said, referring to recent clashes over Taiwan.

The fallacy of global crises

Humans like to believe that global shocks happen with some degree of order or predictability. But that, Ferguson said, is a fallacy.
In fact, rather than being evenly spread throughout history, like a bell curve, disasters tend to happen non-linearly and all at once, he said.
“The distributions in history really aren’t normal, particularly when it comes to things like wars and financial crises or, for that matter, pandemics,” said Ferguson.
“You start with a plague — or something we don’t see very often, a really large global pandemic — which kills millions of people and disrupts the economy in all kinds of ways. Then you hit it with a big monetary and fiscal policy shock. And then you add the geopolitical shock.”
That miscalculation leads humans to be overly optimistic and, ultimately, unprepared to handle major crises, he said.
“In their heads, the world is kind of a bunch of averages, and there aren’t likely to be really bad outcomes. This leads people … to be somewhat overoptimistic,” he said.
As an example, Ferguson said he surveyed attendees at Ambrosetti — a forum in Italy attended by political leaders and the business elite — and found low single-digit percentages expect to see a decline in investment in Italy over the coming months.
“This is a country that’s heading towards a recession,” he said.

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“Quiet quitting” is having a moment.
The trend of employees choosing to not go above and beyond their jobs in ways that include refusing to answer emails during evenings or weekends, or skipping extra assignments that fall outside their core duties, is catching on, especially among Gen Zers.

Zaid Khan, 24, an engineer from New York, popularized this trend with his viral Tiktok video in July. 
“You are still performing your duties, but you are no longer subscribing to the hustle culture mentally that work has to be our life,” Khan says in his video. “The reality is, it’s not, and your worth as a person is not defined by your labor.”
In the U.S., quiet quitting could also be a backlash to so-called hustle culture — the 24/7 startup grind popularized by figures like Gary Vaynerchuk and others.
“Quiet quitting is an antidote to hustle culture,” said Nadia De Ala, founder of Real You Leadership, who “quietly quit” her job about five years ago. “It is almost direct resistance and disruption of hustle culture. And I think it’s exciting that more people are doing it.”
Last year, the Great Resignation dominated the economic news cycle. Now, during the second half of 2022, it’s the quiet quitting trend that’s gaining momentum at a time when the rate of U.S. productivity is raising some concern. Data on U.S. worker productivity posted its biggest annual drop in the second quarter. 
So, why is this trend on the rise? Watch the video above to learn whether quiet quitting is hurting the U.S. economy and how it’s being seen as part of the Great Resignation narrative.

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While all demographic groups saw the unemployment rate tick up slightly in August, it rose at a sharper pace for both Hispanic and Black workers.
Black workers marked the only group that saw labor force participation decline, and their employment-population ratio also fell.
Black labor force participation fell to 61.8% from 62% in July, while the employment-to-population ratio dipped to 57.9% from 58.3%.

Commuters arrive at Grand Central station during morning rush hour in New York, Nov. 18, 2021.
Jeenah Moon | Bloomberg | Getty Images

The August jobs report showed the U.S. unemployment rate rise across the board. Meanwhile, Black workers marked the only demographic to see their labor force participation fall.
The unemployment rate rose 0.2 percentage point to 3.7% in August, according to data released Friday by the U.S. Bureau of Labor Statistics. Nonfarm payrolls came in at 315,000 and fell in line with estimates of 318,000.

While all demographic groups saw the unemployment rate tick up slightly, it rose at a sharper pace for both Hispanic and Black workers to 4.5% and 6.4%, respectively, from 3.9% and 6% in July.
However, Black workers marked the only group that saw labor force participation decline, while their employment-population ratio, which measures what percentage of the population holds a job, also fell.
“There is some volatility in these numbers but seeing a downward trend in employment and participation is worrisome,” said Elise Gould, senior economist with the Economic Policy Institute.

For August, Black labor force participation fell to 61.8% from 62% in July, while the employment-to-population ratio dipped to 57.9% from 58.3%
William Spriggs, chief economist at the AFL-CIO, said that looking at Black workers is one way to gauge what’s really happening among employers.

Black workers across the board face more discrimination than many other groups, which could be one explanation, Spriggs said. A potential slowdown in hiring — as evident through this week’s ADP private payrolls data — could also be contributing to the results.
“When firms slow their hiring rate, that hit Black workers immediately because they’re already in line the longest to try and find a job,” Spriggs said. “What’s happened is the queue’s just gotten longer so the discouraged worker effect is much more acute for Black workers.”
While it’s too early to assign a specific cause to the declining labor force participation among Black workers, Gould said the continued downward trend in recent months may signal something other than “a statistical anomaly.”
That said, the Federal Reserve’s campaign to quickly raise rates to tame surging prices may be causing more damage to the labor market, which tends to appear among historically disadvantaged groups like Black workers.
“Black workers are beginning to feel the brunt of it in a disparate fashion,” said Michelle Holder, a distinguished senior fellow at Washington Center for Equitable Growth. “Now, this is one report, but I pretty much believe that this is going to be the pattern over the next few months, particularly if the Fed continues to aggressively implement its approach.”

Like others, Holder agrees that it’s too early to attribute a cause to the decline in Black labor force participation, but she did call attention to rising unemployment among Black female workers.
The group saw its unemployment rate rise from 5.3% in July to 5.9%. In comparison, white female workers saw their unemployment rate tick up to 2.8% from 2.6%.
Hispanic female workers also experienced a sharp increase in their unemployment rate, rising to 4.3% from 3.2% in the prior month.
While the jobless rate did rise at a faster clip among Hispanic workers compared to white workers and the overall jobs market, that group’s labor force participation rate and employment trend seem to mimic the broader market, Gould said.
“We’re seeing this rise in unemployment as accompanied by a significant increase in participation and then uptake as well in employment,” she said. “I think that’s a hopeful sign. The fact that the unemployment rate moves up is not a troubling thing on its own.”
— CNBC’s Gabriel Cortes contributed to this report.

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