It's a Recession! Job Losses Have Only Begun

While Wall Street debated if the recession would start later this year or early next year, and the Baizuo in government and media were redefining recession, I called the recession in June, dating it back to January. IICS Calls Recession Back to January 2022. It is now official. The BEA reports 0.9 percent contraction in real GDP in Q2 2022.

No special insight was needed for the call since the Atlanta Fed GDP Now model showed this was likely. The only insight I added was that I believe whatever number is reported was going to be rosier than reality. Even if GDP was positive in Q2 and technically not a recession, I would not have retracted my recession call because I believe the future data revisions will show a deeper contraction. Things are also poised to get worse.

It is true that this recession is rather mild thus far if looking at jobs and economic activity, but the outlook isn't a soft-landing. The odds that this is only the start of something much larger are much higher than anyone in government or Wall Street would care to admit to themselves, let alone in public.

Federal Reserve Bank of NY Model Projects 2 Years of Recession

It's Not a Recession. It's a Depression.

The good news on jobs is that unemployment might remain low for people who want to work because poor education, substance abuse and welfare have permanently reduced labor supply, particularly skilled labor. If you're willing to learn a skill and show up to work everyday, you are probably at low risk for job losses outside of the worst case scenarios. Notice how low claims are below. That chart isn't population adjusted either. Claims are very low compared to the population because many people are no longer "in the labor force." They live on welfare, disability, or retired. While it's great for skilled labor, it isn't great for overall economic growth.

Having said that, job losses started ticking up in June. Below is the 4-week average of continuing claims for unemployment.  History shows turns on this chart shouldn't be taken lightly. Continuing claims started rising in April, the average turned up in June. Everyone in a political position (government, media, Federal Reserve) are all talking up jobs. They are betting their reputations and their careers in some cases, on the uptick below being a wiggle rather than a trend change. 

As for the markets, initial moves on recession news were: long-term treasuries up, stocks up, gold up, oil down, dollar down and yen up. Expect some chop, but many of these moves can continue for a few days.