According to the latest data, the United States is close to falling into a recession, despite Federal Reserve officials, Wall Street economists, and financial journalists’ reassurances.
According to the National Bureau of Economic Research, “a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
The NBER gathers its data by looking primarily at six monthly indicators to evaluate whether the economy is expanding or contracting and whether a slump meets the depth, diffusion, and duration test.
Four of these six concurrent indicators — real disposable incomes, real sales, civilian employment, and monthly GDP — have declined over the past three months.
Industrial output of factories, mines, and utilities (a fifth indicator) has been slowing and fell in the latest month. Of the six indicators, only nonfarm payrolls have continued to grow. Is that enough to give us confidence that the economy is not in a recession?
Aside from these six indicators that tell us how the economy is faring now, economists have identified other economic data that hint at what the economy will look like soon. These so-called leading indicators are also discouraging.
The Conference Board said that a “U.S. recession around the end of this year and early next is now likely” after it reported that the index of leading indicators fell 0.8% in June.
The other major leading indicators were already unfavorable. The money supply is falling now that the Fed is tightening up on credit and shrinking its balance sheet.
Initial jobless claims are rising, U.S. home prices are hitting record highs, and mortgage rates are steadily increasing. The data suggest that the risk of a recession is high and rising.