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Consumer spending is one of the main drivers of U.S. economic growth.
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CNN
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And just like that, two of the world’s largest economies have fallen into technological recession.
on thursday, Japan and England Both reported consecutive quarters of negative gross domestic product, meeting the widely agreed definition of a recession.
did it Will the world’s largest economy, the United States, be next? Far from it.
Paul Donovan, chief economist at UBS Global Wealth Management, said in a note Thursday that Japan’s economic contraction is related to a shrinking population. In 2022 the country’s population will decrease by 800,000 people, 14 consecutive years contraction. That means “less people are making and there’s less consuming,” which limits the country’s ability to grow, Donovan said.
But in the UK, population and wage growth have not been enough to stem the decline in consumer spending, one of the main drivers of the economy.
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Japan’s economy contracted at an annual rate of 0.4% in the last three months of 2023, losing its position as the world’s third-largest economy to Germany.
The exact opposite happened in the United States.In the past two quarters, the country’s economy GDP growth far exceeds expectationsThis was mainly due to strong consumer spending.
The US economy has an advantage over most developed countries thanks to $5 trillion in pandemic relief funding, which continues to help strengthen household finances. Another advantage is that Russia is less dependent on energy and less vulnerable than many other countries to the spike in natural gas prices that would accompany a full-scale invasion of Ukraine in February 2022.
But on Thursday, U.S. retail sales data for January was released. much lower than expectedsuggests that after a record-setting holiday season, Americans may be starting to tighten their belts a little tighter.
Still, the labor market remains remarkably strong, as evidenced by the country’s unemployment rate, which has remained below 4% for many years. 24 consecutive months.
The U.S. economy may now be in recession without Americans even knowing it.
That’s because an economy is not considered to be broadly and officially in recession until it is in recession. relatively unknown group Eight out of eight economists say so.
The group, known as the National Bureau of Economic Research’s Business Cycle Dating Committee, retroactively determines the onset of a recession based on “a significant decline in economic activity that spreads throughout the economy and lasts for more than a few months.”
There are no hard and fast rules as to what this involves, but it could include factors such as a spike in unemployment, a drop in income, a significant drop in spending, or negative economic growth.
However, it is important to note that GDP does not necessarily have to be negative for two consecutive quarters. considered to be in recession.of The US experienced it in 2022and the NBER committee did not announce a recession.
Still, the risk of a recession has increased since the Federal Reserve began its tightening cycle in March 2022, Fed Chairman Jerome Powell told reporters in December. But he said: “There is little reason to think the economy is currently in recession.”
But Powell added that even when the economy looks better than ever, there’s always a chance of a recession next year.
That’s because unexpected economic shocks, such as a global pandemic, can occur at any time.
That said, Philip Carlson Schlezak, global chief economist at Boston Consulting Group, doesn’t think the U.S. will enter a recession this year. Instead, “this is going to be a year of low growth,” he said.
He added: “The resilience of the U.S. economy is rooted in fundamental strengths, chief among them our labor market and our people’s personal finances.”
Although he thinks it’s unlikely, if the Fed doesn’t cut rates at all this year, the U.S. could slip into a recession.
Carlson Schlezak said investors are widely pricing in the possibility of multiple interest rate cuts in 2024, and if they don’t work out, they could cause severe damage to financial markets enough to trigger a recession. He said there is.