With its fastest growth in 37 years, the US economy is caught between ups and downs in the second half of 2022. There is no doubt that conditions are slowing down. The question is whether the current period ends with a necessary downshift to contain inflation, or a complete recession that could do even more damage. For now, most economists and policy makers are in the former camp. But there is a growing sense of unease that the latter scenario could easily take hold. “It’s not your fault in the economy that you usually do before a recession,” said Mark Zandi, chief economist at Moody’s Analytics. “With a little luck, I think we get our way. But it’s definitely going to be uncomfortable.” Economic gains The optimistic case for the economy rests largely on two pillars: a resilient, cash-flush consumer and a tight job market with the unemployment rate just short of its lowest level since 1969. A sharp fall in the stock market in the first quarter due to a substantial decline in domestic net worth. But net assets of $149.3 trillion are still up 34.8% from the end of 2020, according to Federal Reserve data. The value of individual stock ownership by households has increased 15.8% during that period, while the value of real estate has increased 20% to $44.1 trillion. For the job market, according to the Bureau of Labor Statistics, there are 1.9 positions for every available employee in the US workforce, with 11.4 million job openings. The unemployment rate stands at 3.6%, which is just 0.1 percent above its pre-Covid level. Even with a large labor shortage across many industries, non-farm payroll growth has averaged 488,000 during the first five months of 2022. Home loans are on the rise, growing 8.3% in the first quarter. But debt still operates at only 9.5% as a share of after-tax income. This is down from 9.9% at the end of 2019 and is way off Q4 2017’s record of 13.2%. Given all this in a vacuum, it almost seems absurd to talk about a recession. Michael Pearce, senior US economist at Capital Economics, said: “While our models suggest recession risks are still low, the Fed’s rapid policy will result in a marked slowdown in economic growth, which means that risks will increase in the coming quarters.” is likely to.” , said in a client note. “But the suggestion that a recession is imminent or inevitable is much wider than the mark.” In fact, Pearce insists that “recession risks are near zero over the next 12 months,” in part because bond markets show signs of little stress and financial conditions – despite interest rate hikes – are “specific from a historical perspective.” Not really tight.” Ed Hyman, chairman and head of the economics team at ISI, penned a note Friday titled, “Why do we think we’re already in a recession?” A strong labor market, solid company sentiment and again, a lack of tension in fixed income markets, Hyman dismisses talk of a recession that would point to a recession. Economic Opposition In response to Hyman’s question: Plenty. While the economy is being supported by its most important contributor, the consumer, there is growing evidence of substantial cracks in that foundation. Hyman’s note came specifically in response to the Atlanta Fed’s GDPNow tool, a running tracker of economic data that becomes more accurate as the quarter progresses and additional inputs are collected. The gauge was revised lower on Friday afternoon and has now seen a 2.1% decline in GDP in the second quarter. GDP grew 5.7% in 2021, the best performance since 1984. Coupled with Q1’s 1.6% decline, this will be a technical bearish — not in the second half, not at some distant point in the future, but now. (The Commerce Department will release its official GDP calculation on July 28.) The Atlanta Fed said its latest downgrade stemmed from a number of reports, which capped with Friday’s ISM Manufacturing Survey, indicating that consumer spending and private investment expected More layoffs. This is bad news for an economy dependent on both. The ISM report also showed hiring and new orders fell to their lowest levels since the early days of the pandemic in the contracting sector. Core audience inflation is operating at 8.6%, the highest level since the end of 1981. While consumers have handled rising prices including gasoline near $5 a gallon, that may not last forever, especially when savings levels are falling. Bill Adams, chief economist at Comerica Bank, said, “Inflation is weighing on consumer sentiment and stifling consumer spending. Consumers who still have extra spending power spend it on food, vacations and other services.” Not doing more stuff.” “It is increasingly likely that US real GDP has contracted for two consecutive quarters in the first half of 2022. But unless the US begins to see full-blown job losses, this period will be an absolute,” he said. Looks more like a recession than a recession,” he said. However, the US had never experienced two consecutive quarters of decline in GDP without a recession in the post-World War II era. Of course, what really keeps economists up at night is how the Fed reacts. The central bank is on a rate-hike cycle that began well after inflation took hold and is accelerating as the economy begins to weaken. Moody’s economist Zandi said this is now the biggest risk. The central bank’s abrupt pivot in June, which looked like a well-telegraphed 50 basis point (0.5 percentage point) rate hike, followed a 75 basis point increase in inflation data that looked like ” They’re ad-free,” Zandi said. “It alludes less well to their ability to manage things appropriately.” Street Zandi views a recession likely to be around 40% in the next year and 50% over the next two years. This is in line with the rest of Wall Street, which has raised the prospect of a recent downturn. Goldman Sachs recently lowered its Q2 outlook for GDP to a relatively low 2.8%, but lowered its respective outlooks to 1.75%, 0.75% and 1% for the subsequent three quarters, corresponding to Q4. will only lead to full-year growth of 0.9 in Q4. %, down from the previous 1.3% forecast. “We now see recession risk as higher and more front-loaded,” wrote chief economist Jan Hetzius, basing his view on the more aggressive Fed. The firm sees the prospect of a recession of 30% in the next year and 48% in the next two years. Credit Suisse expects GDP to grow by just 0.8% over the next two years. Economist Jeremy Schwartz wrote, “Rapid Fed tightening, rising risk premiums, and slowing global growth all make the prospect of a prolonged US recession.” UBS raised its bearish probability to 69% based on recent data flows. And Deutsche Bank, the first major Wall Street firm to warn of a recession, extended its timing. “More aggressive growth prompts us to push the timing of the expected US recession to mid-2023 slightly ahead of time,” wrote Deutsche chief economist David Fockerts-Landau. “Over 8% inflation and near-full employment with no spotless deflation, and thus no soft landing.” —CNBC’s Michael Bloom contributed to this report.