Economy

UK private sector business activity contracted in August, in a sign of consumer demand being hit by the intensifying cost of living crisis. The S&P Global/Cips UK purchasing manager index for manufacturing and services dropped to 49.6 in August from 52.1 in July and below a flash reading of 50.9.This was the first time the reading fell below 50 — the threshold between contraction and expansion — since January 2021, when the country was in a Covid-19 lockdown.With inflation at a 40-year-high, the figures come as rising energy and food prices are putting pressure on households’ finances, while soaring costs add to business challenges.Chris Williamson, chief business economist at S&P Global Market Intelligence, said the figures showed that incoming prime minister Liz Truss “will be dealing with an economy that is facing a heightened risk of recession, a deteriorating labour market and persistent elevated price pressures linked to the soaring cost of energy”.Williamson said demand for consumer-facing services, such as restaurants, hotels, travel and other recreational activities, was “collapsing under the weight of the cost of living crisis”. He added that demand for business services was also coming under pressure amid concerns over rising costs and the darkening economic outlook.The final reading for the services sector was 50.9 in August, down from initial estimates of 52.5 and the lowest since February 2021. The corresponding reading for manufacturing, published last week, was 47.3. That indicated the worst contraction since May 2020, when strict Covid curbs were in place.Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, said: “The latest PMI data signal that the economy is on the brink of a recession.”Among services providers, operating costs rose sharply, according to the figures, and there was evidence of higher wages and salaries being paid.The growth in price setting “will worry the [Bank of England’s] Monetary Policy Committee more than the stalled recovery”, added Tombs.

Output price inflation also accelerated compared with July, marking almost two years of uninterrupted growing output charges. The results chime with the Bank of England Decision Maker survey released last week, which showed that momentum was still building in price and wage expectations, even if demand was weakening.With price pressures building, markets are pricing in a 75 per cent probability of a 75 basis points increase in the policy interest rate at the MPC’s next meeting on September 15. They expect interest rates to rise to 4 per cent by February next year from the current 1.75 per cent.John Glen, Cips’ chief economist, said that while port disruption, Brexit paperwork and shortages were all contributing to high inflation, the services sector was “relatively powerless” faced with ever-increasing energy bills. “Services businesses will have their eyes firmly on the new prime minister this week as they hope for a policy-driven solution to rocketing costs,” he added. More

Unlike many progressives, I worry a lot about debt. Public debt, private debt, personal debt — I don’t like any of it. You could maybe chalk it up to my Midwestern upbringing or being the child of immigrant parents. I like having cash on hand, and have always been willing to pay a return price to hold it. You never know when bad times are coming.So I was particularly interested in a paper by economists Francesco Bianchi of Johns Hopkins and Leonardo Melosi of the Chicago Fed, that made a huge stir last week in Jackson Hole. The typically low key academic title, “Inflation as a Fiscal Limit,” belies the heat that it is generating in academic, policy and even financial media circles. The frightening upshot of the work is that it doesn’t matter what the Federal Reserve does right now in terms of hiking rates to try and get inflation under control. If monetary policy isn’t accompanied by appropriate fiscal policy (or to be more accurate, a “mutually consistent monetary and fiscal policy”), then stagflation will be the result.For some people, that might sound like, “well, duh,” of course central bankers can’t do it all themselves. And indeed, it’s worth pointing out that Fed chairs since Ben Bernanke have been begging Congress to do its part in helping the US economic picture. Until recently, that’s been more about calling for investment. We’ve just come through an unprecedented period of easy money that would have been the perfect time to do cheap, public investment into education, infrastructure, clean energy — you know the story. Instead, we got Trump’s tax cuts and corporate share buybacks.Now, rates are rising, which is a much tougher time to make investments, not just for political reasons, but because according to the paper, this is when you want to be reducing debt not adding to it. Let me pause here and give my huge caveat (which co-author Francesco Bianchi would agree with) — all fiscal spending isn’t created equal.Unfunded entitlements are one thing. But investments into the moonshot technology transition of our time — clean energy — paid for by taxes on corporations with higher profit margins than they’ve had in history? That’s fine. In fact, as Bianchi put it to me, “these types of investments could make a country’s economic position better over time,” by creating jobs and growth and tax receipts that bring down deficits. Indeed, Bianchi was understandably a bit concerned that by pointing out that debt matters when fighting inflation, he was at risk of being labelled a hard core Republican (he’s not).The Biden administration obviously gets all this — witness the clean energy bill that just passed under the title the “Inflation Reduction Act.” But this idea that rate hikes and a deteriorating fiscal position aren’t a good mix dovetails with another uncomfortable truth — deglobalisation, climate change and the end of the neoliberal world may be fundamentally inflationary, at least in the short term.Think about what it will take to build more regionalised industrial systems, resilient supply chains, and a new clean energy supply. All of it is necessary, in my view. It also involves spending, which is inflationary. And I’m not even getting into what our nascent move into a post-dollar world could add to this equation. It’s one thing to spend, spend, spend when the dollar is the reserve currency. It’s another to rack up debt (again, I’m taking unproductive debt, here) when that’s changing.How will all this play out? I’ve written in the past about the possibility of a “dollar doomsday” scenario (see here for part II of that series) in which both currency and dollar assets fall. I don’t think we are headed there now, in part because the US is still the cleanest dirty shirt in the closet. All these trends I’ve just laid out will hit Europe even harder, and China feels riskier and even more opaque that it has always been, with the possibility that Xi Jinping could anoint himself ruler for life. So, the US is safe for a while. But both Republicans and Democrats need to start thinking hard about what the dovetailing of deglobalisation and rate hikes will mean — that’s a topic I tackle in my own column today. In the meantime, Ed, are you keeping more cash under the mattress these days? Or do the English do it differently? Recommended readingMy colleague Martin Wolf flagged an article for the FT editorial board on some frightening University of Chicago research showing that up to 20mn Americans believe political violence is justified. How do we counter this? By working with the other side, always, to make it clear that it’s totally OK to have diametrically different views, but it’s never OK to express them violently.This New Yorker piece on the connections between refrigeration and economic growth is exactly the sort of thing I love to geek out on, but I do think the author should have taken on the challenging question of how air-conditioning itself poses climate risk even as it is totally necessary for creating more jobs in the hottest places on earth. Hmm . . . And everyone should read my colleague Jemima Kelly’s look at why intellectual humility is a rare and under-developed virtue. Do it especially if you think you know what the piece will say!Edward Luce responds Rana, if you literally mean cash then the answer is no. I almost never have cash on me since almost everything can be settled with plastic. With US inflation at these rates — and the UK’s rate forecast to go as high as 19 per cent this winter — it’s a particularly bad time to have lots of cash lying around. Might as well reap the upside of those rising interest rates. To be frank, though, I am still not sure I agree with the paradigm shift you’re sketching out. For sure, there is an element of deglobalisation taking place and that is worsening the supply chain problem, which is inflationary. I was intrigued to hear talk from Jackson Hole of a new age of volatility following 30 years of great moderation. That sounds disturbingly plausible and will challenge all walks of economic policymaking, fiscal and monetary. Either way, I am feeling uncharacteristically humble in anticipating what will happen. We are living in a time when phrases such as “reversion to mean” and “all things being equal” sound increasingly fanciful. All of which is to say that all kinds of forecasting are going to get tougher and political risk will seep into everything. Will a coherent new paradigm replace the one that many people, including you, believe is vanishing? I think the future will be messier and less coherent than that, which isn’t a good thing. To paraphrase the journalist Lincoln Steffens, I haven’t seen the future so I don’t know if it works. Your feedback And now a word from our Swampians . . . In response to ‘The unanswered question of Mar-a-Lago: why did Trump do it?’:“I am impressed that in Rana’s response, citing the words ‘id-driven man-child’, she managed to avoid the words ‘Boris’ and ‘Johnson’.” — David Gordon, North London, England “The way a narcissistic, paranoid [person] became president of the United States has been possible in the context of the deep crisis the country is suffering. He is a crazy demagogue but product of several unhealthy and disruptive trends.” — Mariano Aguirre, Spain More

LONDON (Reuters) – The euro zone is almost certainly entering a recession, with surveys on Monday showing a deepening cost of living crisis and a gloomy outlook that is keeping consumers wary of spending.While there was some easing of price pressures, according to the surveys, they remained high and the European Central Bank is under pressure as inflation is running at more than four times its 2% target, reaching a record 9.1% last month.It faces the prospect of raising interest rates aggressively just as the economy enters a downturn.A rise in borrowing costs would add to the woes of indebted consumers, yet in a Reuters poll last week almost half of the economists surveyed said they expect an unprecedented 75 basis-point rate hike from the ECB this week, while almost as many forecast a 50 bps hike. [ECILT/EU]Despite those expectations the euro dropped below 99 U.S. cents for the first time in 20 years on Monday after Russia said gas supply down its main pipeline to Europe would stay shut indefinitely. [MKTS/GLOB]Gas prices on the continent soared as much as 30% on Monday, stoking fears of shortages and reinforcing expectations for a recession and a bitter winter as businesses and households are battered by sky-high energy prices.S&P Global (NYSE:SPGI)’s final composite Purchasing Managers’ Index (PMI), seen as a guide to economic health, fell to an 18-month low of 48.9 in August from July’s 49.9, below a preliminary 49.2 estimate. Anything below 50 indicates contraction.”The PMI surveys signal that the euro area is entering recession earlier than we previously thought, led by its largest economy Germany, and we now see the euro area ‘enjoying’ a longer, three quarter recession,” said Peter Schaffrik at the Royal Bank of Canada.”The revision is mainly due to developments in energy prices which, even after retreating over recent days, remain elevated and which mean that the impact on household spending will be larger than we hitherto anticipated.”That prospect of recession whacked investor morale in the currency union and it slumped in September to its lowest since May 2020, another survey showed.Services activity in Germany, Europe’s largest economy, contracted for a second month running in August as domestic demand came under pressure from soaring inflation and faltering confidence, earlier figures showed.Its economy is on track to contract for three consecutive quarters starting from this one, a Reuters poll suggested last week. [ECILT/DE]In France, the euro zone’s second-largest economy, the services sector lost more steam and only managed to eke out modest growth with purchasing managers saying the outlook was bleak.The Italian services industry returned to modest growth but in Spain activity expanded at the slowest rate since January, with companies concerned inflation would weigh on their profits and on customers’ demand.In Britain, the economy ended August on a much weaker footing than previously thought as overall business activity contracted for the first time since February 2021 in a clear signal of recession, its PMI showed. [GB/PMIS]Later on Monday the country will learn who will become its next prime minister, tasked with trying to manage an economy facing a long recession alongside eye-watering inflation and industrial unrest.In Asia, surveys showed a strong rebound in China’s services sector eased slightly amid fresh COVID-19 flare-ups, while in Japan the sector contracted for the first time in five months.However, India’s dominant services industry grew faster than expected last month thanks to a solid expansion in demand and a continued easing in cost pressures. More

The People’s Bank of China said it would cut the foreign exchange reserve requirement ratio (RRR) to 6% from 8% beginning Sept. 15, according to an online statement.The PBOC said the reduction aimed to improve “financial institutions’ ability to use foreign exchange capital,” the statement added.The move came after the Chinese yuan’s recent slide to two-year lows. The yuan has depreciated by 8% against the dollar in the year to date, as a result of broad dollar strength in global markets and China’s worsening economic slowdown. The reduction in reserve requirements would boost dollar liquidity. Based on end July data, when foreign exchange reserves stood at $953.7 billion, the lower requirements would free up around $19 billion.”It is not a huge amount compared to cross border receipts,” said Frances Cheung, rate strategist at OCBC Bank.”Still, the market is mindful of the signal the central bank sends.”Both onshore and offshore yuan briefly bounced about 200 pips following the PBOC statement and pared some of their earlier losses.Some traders and analysts said the cut was expected and was partly a signal to the market that rapid declines in the yuan would be unwelcome.”As recent daily yuan midpoint fixings persistently came in stronger than market expectations, the PBOC’s official action to stabilise the yuan was already within market expectations,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.The PBOC has been setting firmer-than-expected midpoint guidance rates over the past two weeks, with many market participants interpreting it as a sign of official efforts to rein in the yuan’s weakness.Bruce Pang, chief economist at Jones Lang Lasalle (NYSE:JLL), said Monday’s announcement showed that the authorities have started to adopt appropriate policy tools and macro-prudential tools to iron out excess yuan volatilities.”It could cool down one-way depreciation bets against the yuan and alleviate the pressure of a fast yuan depreciation,” Pang added.Major investment houses have cut their yuan forecasts as its fall against the dollar accelerated since mid-August, with some expecting a breach of the 7-per-dollar milestone before next month’s politically sensitive Party Congress despite authorities’ efforts to slow the slide.The PBOC last cut the FX reserve requirement ratio by 100 basis points in April, in a bid to rein in a sliding yuan and make it less expensive for banks to hold dollars. More

Good morning. The euro has dropped to a fresh 20-year low against the dollar after Russia’s decision to shut a major gas pipeline to Europe intensified the region’s energy crisis.The common currency fell as much as 0.7 per cent to $0.988 in London trading, the lowest level since 2002. European stocks also fell, with the regional Stoxx 600 index down 1 per cent, Germany’s Dax off 1.7 per cent and France’s Cac 40 down 1.8 per cent. London’s FTSE 100 slipped 0.7 per cent.In energy markets, Dutch TTF gas futures, the benchmark European contract, jumped 30 per cent to €272 per megawatt hour, rising back towards all-time highs hit above €340 just under two weeks ago.European countries — including Sweden, Finland and Germany — scrambled over the weekend to respond to Russia’s “weaponisation” of energy supplies and offer financial support to businesses and consumers.Liz Truss, who is expected to be confirmed Britain’s new prime minister later today, is expected to unveil a new package of measures to help families and business cope with soaring energy bills within days of taking office.The latest spike in energy prices follows Russia’s decision on Friday after markets closed to indefinitely suspend natural gas flows through the Nordstream 1 pipeline, the main energy supply channel from Russia to European markets. State-owned Gazprom said the suspension was due to a technical fault.Russia’s announcement came just hours after G7 countries announced plans to move ahead with a price cap on Russian oil exports in an attempt to reduce revenues flowing to Moscow that could be used to fund its war in Ukraine.Opec oil-producing countries and their allies are likely to look at ways to prop up oil prices when they meet today. The 11 per cent drop in oil prices last week has prompted a clamour from some Opec+ members to reverse policy after months of supply increases.International benchmark Brent rose 1 per cent ahead of the meeting to $94.41 a barrel.Thank you for reading FirstFT Americas. We hope you have a great week — GordonFive more stories in the news1. Bed Bath & Beyond executive dies Police have confirmed the man who fell to his death from a New York high-rise apartment block on Friday was Gustavo Arnal, chief financial officer of troubled home goods retailer Bed Bath & Beyond. The 52-year-old was found unresponsive at a Tribeca tower in lower Manhattan and was pronounced dead at the scene, New York police said yesterday.2. Chileans reject new constitution Voters in Chile overwhelmingly rejected a new constitution, dealing a blow to President Gabriel Boric and bringing relief to investors, who had feared the changes would upend the country’s pro-market economic model. Only 38 per cent backed the proposals in a mandatory plebiscite yesterday, in which nearly 13mn Chileans participated. 3. China extends Covid lockdowns Chinese authorities have extended the Covid-19 lockdowns in Chengdu and Shenzhen, backtracking on promises of freedom for tens of millions of people in the southern megacities following mass testing campaigns. At least 68 cities are currently in partial or full lockdown in China, according to data from the country’s National Health Commission.4. Apple plans to double its digital advertising business workforce Apple plans to nearly double the workforce in its fast-growing digital advertising business less than 18 months after it introduced sweeping privacy changes that hobbled its bigger rivals in the lucrative industry. Apple’s once fledgling ads business has grown from just a few hundred million dollars of revenue in the late 2010s to about $5bn this year, according to research group Evercore ISI.5. Police hunt for two men after stabbings leave 10 dead in Canada Canadian police said that 10 people were killed and at least 15 others injured in stabbings in the province of Saskatchewan yesterday — and that two suspects remain at large. The Royal Canadian Mounted Police named the suspects as 30-year-old Damien Sanderson and 31-year-old Myles Sanderson.The day aheadAmerican Labor Day Markets in the US will be closed today as the country observes a national holiday commemorating the works and contributions of labourers.New UK prime minister named The winner of the Conservative party leadership contest will be announced later today. Liz Truss is widely expected to have beaten rival Rishi Sunak after weeks of campaigning. The winner becomes prime minister tomorrow and will travel to Balmoral in Scotland for a meeting with the Queen before taking office.Lebanon presidential election The country’s parliament votes today to decide the next president for a term of six years.What else we’re reading‘A deglobalising world will be an inflationary one’ The war in Ukraine, the global carbon neutrality push, US-China decoupling, Federal Reserve rate rises putting a cap on easy money — there is no getting around the fact that a deglobalising world will also be a more inflationary one, at least in the short term, writes Rana Foroohar.Inside the revival brewing at Starbucks The grassroots effort to organise workers at the coffee chain has spread to more than 200 stores. The momentum of the worker movement among Starbucks employees is emblematic of the more widespread resurgence of support for trade unions across the US.Crypto real estate: the property market built on digital assets There are tens of thousands of bitcoin acolytes with the equivalent of more than $1mn in their digital wallets. A survey of US housebuyers found that 12 per cent of first-time buyers planned to liquidate digital assets for a downpayment. Agents are aiming to tap that pool of buyers and convert cryptocurrency into bricks and mortar. ‘I got mooed at for expressing milk at Goldman Sachs’ Bully Market is a sensational account of sexual discrimination and harassment at Wall Street powerhouse Goldman Sachs. Jamie Fiore Higgins worked at the bank for 17 years and left in 2016 but her book has lessons for any powerful organisation. Three ideas stand out, writes Pilita Clark. Summer is over. Will everyone now go back to the office? From Tesla to Apple and Peloton, some of the biggest companies are making a concerted push to get people to return to in-person work. Some executives are getting impatient and taking a harder line — only to be met with rejection and resentment from their employees.Go deeper: Business professor Stefan Stern explains why the office-home balance is still a challenge. TravelFrom Surry Hills in Sydney to Manhattan’s Lower East Side, via 18th-century Lisbon — here are five fabulous new hotels for great city stays. More

The EU needs a new fund to help manage downturns in its member states and pay for green investments, the International Monetary Fund said, as it called for an urgent overhaul of the way the bloc handles public finances amid rising economic hazards.Warning that the union’s current economic framework had “failed” in its basic task of containing budgetary risks, the IMF said in a policy proposal that the EU needed to create a new “fiscal capacity” funded by common debt issuance and new income streams, building on the experience of the temporary €800bn Covid-19 recovery fund. This would come on top of a revamp of the EU’s fiscal rules to deliver sounder public finances alongside better flexibility to tackle economic crises, the IMF proposed. “Reform of the EU fiscal framework cannot wait,” the IMF said in a paper published on Monday. “Multiple unprecedented shocks on top of already high debt levels complicate the conduct of fiscal policy. Interest rates have been rising, and monetary policy normalisation continues apace.”With the EU heading into a potential recession driven by the energy crisis, and interest rates surging against a backdrop of high debt burdens, fiscal policy reform is rising rapidly up the EU agenda. The looming shock to household incomes is likely to spark calls for fresh common EU borrowing to cushion economies — on top of the existing recovery fund. Among the ideas would be joint schemes to shelter households from soaring energy prices, or fresh common borrowing to back energy investment projects. However, northern EU member states backed the NextGenerationEU recovery fund in the teeth of the pandemic-induced slump on the basis that it was a one-off instrument, and they have shown little appetite to create a permanent new EU fiscal capacity. Efforts by some southern politicians early this year to galvanise a debate on extra borrowing foundered. Nevertheless, the IMF said the EU now needed to implement a “well-designed EU fiscal capacity” to help stabilise economies, especially when central banks had little monetary policy firepower, and to deliver key investments to counter climate change and boost energy security.This would come alongside an overhaul of the EU’s stability and growth pact, which requires member states to observe a deficit ceiling of 3 per cent of GDP and a debt limit of 60 per cent of that figure. The European Commission is preparing a set of proposals for overhauling the pact to make it clearer, more enforceable, and more responsive to the high public debt burdens that have emerged from the Covid-19 outbreak. Enforcement of the rules is currently on hold until the end of next year in the wake of the pandemic. The commission is expected to table reform proposals next month, which may require new EU legislation. The IMF report found that the pact in its current form had failed in its “most basic purpose” — reliably containing fiscal risks. It did not suggest ditching the 3 per cent or 60 per cent limits, but advocated that the speed at which member states needed to improve their budgetary positions would depend on analysis of their debt sustainability. All EU countries would have to enact medium-term fiscal frameworks and set multiyear annual spending caps, with independent national fiscal councils playing a stronger monitoring role. “The European Union needs revamped fiscal rules that have the flexibility for bold and swift policies when needed, but without endangering the sustainability of public finances,” the IMF said. “It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk. This will require building greater fiscal buffers in normal times.” More

Chinese authorities have extended Covid-19 lockdowns of Chengdu and Shenzhen, backtracking on promises of freedom for tens of millions of people in the southern megacities following mass testing campaigns. At least 68 cities are in partial or full lockdown, according to data from the country’s National Health Commission, fuelling anxieties that restrictions initially planned for days could extend into weeks or longer as occurred in Shanghai this year. Authorities in Shenzhen, China’s manufacturing and technology hub, said on Monday that restrictions would continue for three days in parts of the city where cases had been reported after a weekend lockdown of some of its 17.5mn residents. On Sunday, the city reported 71 new coronavirus cases.“The city’s Covid situation is severe and complex. The number of new infections remains relatively high and community transmission risk still exists,” warned Lin Hancheng, a local official.Chengdu, a city of 21mn and the capital of Sichuan province, announced a four-day lockdown last week. But authorities reported 140 cases on Sunday and said the restrictions would persist until at least Wednesday. The measures sparked panic buying across the city, with videos spreading online of people piling up their cars with pork and vegetables. Reflecting the sweeping impact of President Xi Jinping’s zero-Covid policy, authorities have urged citizens to stay home for the upcoming Mid-Autumn Festival. The decision has dealt a blow to hundreds of millions of workers, who often make a rare trip to their hometowns for family gatherings for the annual event, which starts on Saturday. The latest restrictions also added to pressure on the world’s second-biggest economy, which has been grappling with a liquidity crisis in the property sector. The economy expanded 0.4 per cent year on year in the three months to the end of June, below the 1.2 per cent forecast by economists.“Uncertainty over China’s growth prospects and concerns about project incompletion will largely drive weak homebuyer demand over the next six to twelve months. Covid-19 disruptions to business activity and sales execution will also dampen consumer sentiment,” said Daniel Zhou, an analyst at Moody’s, the rating agency.Other provincial capitals have halted transportation or movement of their citizens to get cases back to zero, aligning with the central government’s elimination strategy.

For example in Hangzhou, the capital of Zhejiang province in eastern China, testing requirements for anyone going to work, shop or take public transport have been tightened to 72 hours from once a week. But some businesses are showing increasing signs of being able to operate under the zero-Covid policy. In Chengdu, many factories, including German carmaker Volkswagen, have arranged for workers to live on their campuses in “closed-loop” systems in order to stay open.The lockdown has followed a tough month for Sichuan province, which has endured a record heatwave and drought. On Monday, a 6.6 magnitude earthquake struck Luding county, south-west of Chengdu.

Video: China’s unseen war for strategic influence More

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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