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I’m utterly confused


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Today’s Financial Times makes a claim that makes my head spin:

Of the 45 economists surveyed between December 2 and December 5, 85 per cent project that the National Bureau of Economic Research — the arbiter of when recessions begin and end — will declare one by next year.

While most of the economists expect the coming contraction to be shortlived — with gross domestic product growth still registering a 1 per cent gain by the end of next year — more than half are bracing for the unemployment rate to rise substantially from its current 3.7 per cent level to between 5.5 per cent and 6.5 per cent.

A handful of economists pencilled in an even more dire outcome, with the unemployment rate either closing in on or exceeding 7 per cent.

If you go to the link, you’ll find that the RGDP forecast is for 2022:Q4 to 2023:Q4. The median forecast for the unemployment rate in December 2023 is 4.5%. Oddly, that forecast doesn’t seem to match the consensus view that unemployment will peak at about 5.5%, and that the peak will likely occur in late 2023 or early 2024.

But that’s not what concerns me. Rather, in what universe could the US experience 1% RGDP growth in 2023 and end the year with 4.5% unemployment? What am I missing?

Some context might be useful. While the 4th quarter data for 2022 won’t be available for a few weeks, it’s pretty clear that RGDP growth for 2021:Q4 to 2022:Q4 will come in right around 1%, the same figure as being forecast for 2023. But 2022 was a boom year, with an amazing 4.5 million jobs being created. The unemployment rate fell from 3.9% in December 2021 to 3.5% in December 2022. And now we are being told that RGDP growth will continue at the same pace in 2023, and yet unemployment will shoot up to 4.5%? Really?

Companies are desperately short of workers. When I traveled over the holidays, I found service to be a complete disaster at one business after another.

Just to be clear, it would not surprise me at all if the unemployment rate did rise to 4.5% in 2023. What would surprise me is if this increase occurred during a time when RGDP was increasing at a 1% rate. What am I missing? Is AI going to suddenly cause a productivity surge in 2023?

I would not be at all surprised if there were a recession in 2023. After all, recessions often occur when anti-inflation policies are implemented.

I would not be at all surprised if there were no recession in 2023. A consensus of economists is currently predicting a recession, but the consensus of economists has been consistently wrong about every single recession over the past 40 years.

I suppose I could be accused of wimping out, refusing to put my reputation on the line. OK, so here’s my almost worthless forecast. I predict that America will experience its first ever mini-recession in 2023. The first “recession” we’ve ever had where the unemployment rate rises by less than 2 percentage points from the previous cyclical low. Whether that outcome would deserve to be called a “recession” is a question I’ll leave to others (i.e., the NBER). I don’t care.

PS. Today’s jobs report is very good news. I’m surprised that stocks aren’t up even more.


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