‘Growth recession’ might be on horizon, economist says

Our economy could be headed for a «growth recession,» according to one economist.

Christopher Decker, with the University of Nebraska Omaha, said the underlying currents suggest a slowdown is coming.

That slowdown could bring economic growth to a near standstill, perhaps flat or 0.5%.

But if we can avoid dropping below that line, if we can avoid a contraction, then we might experience what Decker sees as a «growth recession.»

“It won’t feel as bad as the full-blown contraction, but it’ll be enough to cause folks to manage their budgets, kind of curtail consumption,” he said.
A “growth recession” wouldn’t necessarily feel worse than the high inflationary environment we’ve been living with for the last two years, though Decker expects more folks could lose their jobs.

Decker isn’t expecting a spike in unemployment, but he expects it to rise from the current 3.5%, which is near a 53-year low.

“By the end of the year, we could be in the four-plus percent range,” he said.

A «growth recession» would be an example of the sought-after «soft landing» for the economy and is “probably the best-case scenario,” Decker said.

Moody’s Analytics Chief Economist Mark Zandi has predicted a similar outcome with what he’s called a «slowcession.»

Both economists think we have a good shot of avoiding severe pain from a deep recession.

Decker said the labor market is still looking strong.

But it’s softening in ways that the Federal Reserve likely wants to see as it tries to tame inflation, currently sitting at 6%.

Employers added 236,000 jobs in March, the lowest monthly gain since the end of 2020.

The February Job Openings and Labor Turnover report from the Bureau of Labor Statistics posted a job openings number below 10 million for the first time since May 2021. Decker said that’s a downward trend that’s been in place since December 2021, when openings peaked at 11.8 million.

New inflation figures – the consumer price index – will be released this week. So, we’ll see if the lower job figures translate to lower inflation.

The Fed’s target is 2% inflation, which Decker thinks will be tough to reach.

Still, Decker said the data suggests that the Fed’s interest rate increases are working as desired.

Decker expects the Fed to increase rates by another quarter basis point.

There are still more job openings than people to fill them.

And Decker said businesses will likely cut other places, such as overtime or material orders, before resorting to layoffs. Rehiring has proven costly and difficult for many companies following the pandemic recession.

Tech sector layoffs aren’t necessarily an indicator of wider economic problems, as there’s a sort of rightsizing happening there following explosive growth during the pandemic, Decker said.

But headlines of layoffs at big companies such as Amazon and Google can fuel overall unease about the economy, Decker said.

“If the general population starts to feel like, ‘OK, this is a signal of gloom and doom,’ then we might very well have a self-fulfilling prophecy” of a recession, he said.

Decker said the data we see through the summer will be critical to whether we suffer a recession or not, which he said remains a possibility later this year.

Decker said he’s backing off any concerns of a major contraction at the moment.

But he cautioned expectations can easily change.

“Last fall, a lot of economists, including myself, were convinced that, yeah, we’re heading for a recession, and it’ll be a recession sometime in the first half of 2023,” he noted. “Well, doesn’t look like that’s going to happen.”