Don’t expect the bounce-back in the US economy in the third quarter to quiet the chorus of recession calls.
The US economy grew by a stronger-than-expected 2.6% from July to September, after contracting 1.6% in the first quarter and 0.6% in the second quarter of the year.
The welcome GDP report comes amid almost daily recession warnings from bank CEOs, business economists, think tanks and former Treasury secretaries. They are focused less on the deficit of growth in the first half of the year and more on the surplus of uncertainty ahead.
But as the dread grows, today’s news is a reminder that no one knows for sure whether the US economy will tip into a recession. Moreover, most of those same prognosticators agree that even if we do have a recession, it would be mild.
First, let’s look at how we got here:
The economy rebounded sharply from the Covid-19 pandemic, but has been weighed down by 40-year high inflation and now, higher interest rates as the Federal Reserve tries to tamp down rising prices. An imbalance between supply and demand and a shortage of labor shrank US gross domestic product in the first and second quarters, meeting one technical definition of a recession — and that’s what started to raise red flags.
Secondly, circumstances are different this time:
As consumers face these challenges head on, household finances today are in much better shape than they were at the start of the financial crisis in 2008-2009. The job market is still robust, with unemployment at a half-century low.
Thirdly, we won’t know if we are, or were, in a recession until it is over:
A recession may be coming. Or not. Or it’s here. Or we already muddled through one. The official arbiter of that distinction is the National Bureau of Economic Research, whose economists consider jobs, industrial production, retails sales and reams of other data to determine when a recession started and ended.
The last recession, in early 2020 at the start of the pandemic, lasted just two months.
Also: No one really knows for sure. There’s an old joke about a frustrated President Harry Truman who, tired of listening to his economic team contradict themselves, said: “Give me a one-handed economist! All my economists say, On the one hand, on the other …”
The US economy is a vast $21 trillion behemoth, the largest and most dynamic in the world. Economists have always — sometimes famously — disagreed on how to measure it.
And finally, it’s all about perspective.
A recession is scary. People lose jobs and businesses close. But inflation is also scary. And it will take a slowing economy — maybe even a recession — to control soaring prices.
“That’s why I’ve tried to wave people off of this whole question about whether there was a recession or has been a recession in the first half because inflation is bad enough,” Mark Hamrick, senior economic analyst for Bankrate.com, said on CNN’s Early Start.
The pain from inflation would be worse than the pain of rising unemployment in a recession.
“What do recessions and inflation have in common?” Hamrick said. “They part people from the ability to buy the things they want and need. And in this case the inflation issue has really affected more people than a larger number of unemployed would in that situation.”
Again, no one knows for sure. But even the staunchest recession hawks think a recession — if it happens — would be mild.
Former Treasury Secretary Larry Summers told my colleague Wolf Blitzer that a recession became “almost inevitable” once inflation topped 5 percent, but noted, “I certainly don’t think it’s going to be like the  financial crisis … or like the terrible things that happened after the pandemic started.” And entrenched inflation, he notes, is far more damaging than a brief recession would be.
JPMorgan Chase CEO Jamie Dimon has been warning for months about an economic “hurricane,” but acknowledged to my colleague Richard Quest at a conference in Saudi Arabia that the recession would be manageable.
“There’s a lot of stuff on the horizon which is bad and could — doesn’t necessarily but could — put the US in recession,” he said. “That’s not the most important thing we think about. We’ll manage through that. I’d worry much more about the geopolitics of the world today.”
The dreaded R-word gets all the headlines, but the war in Ukraine, an aggressive Russia, tensions between the United States and China and a fractured relationship with Saudi Arabia all pose risks too.
Another way to think about it? Grading on a curve.
In the United States, the economy is growing, jobs are plentiful, inflation is showing signs of coming back to Earth and stock markets have rebounded.
In Europe, gas prices are sinking, warm weather is delaying the need to dip into energy stockpiles and the UK has a new prime minister and is no longer minutes away from political and financial collapse.
In China, growth was better than expected despite its zero-Covid policies.
We may all be feeling better than we did when things were at their hardest, but we’re far removed from when things were at their best.
Bottom line? Recession guessing is exhausting and imprecise. It’s entirely out of our control. What isn’t? Paying down high-interest debt, living below our means and saving for retirement.
And it won’t last forever. After all, the average recession since 1950 lasted just 10 months, but the typical expansion ran for 59 months.