“It’s the ‘Godot’ recession,” said Ray Farris, chief economist at Credit Suisse. Last fall, Mr. Farris found himself among a small minority of economists who had predicted the economy would narrowly circumvent a slowdown this year. Every six months, economists have predicted a recession six months later, he said. “At the middle of the year, people will still expect a recession six months from now.”
The article refers to a set of indicators (you can see monthly in this job), but here are the latest weekly indicators – the Lewis-Mertens-Stock Weekly Economic Index, the Baumeister-Leiva Leon-Sims WECI and the OECD Weekly Tracker, for data through 2/25.
Figure 1: Lewis-Mertens-Stock Weekly Economic Index (blue), OECD Weekly Tracker (tan) and Baumeister-Leiva-Leon-Sims Weekly Economic Conditions Index for US plus 2% trend (green). Source: NY Fed via Fred, OECD, WECI.
The Weekly Tracker, which had dipped into negative for the week ending 11/26, now exceeds the WEI (1.1%) and the WECI+2% (1.8%) by 3%. The WEI reading for the week ending 2/25 of 1.1% can be interpreted as quarterly growth of 1.1% if the 1.1% reading were to persist for an entire quarter. Baumeister et al. a reading of -0.2% is interpreted as a growth rate of -0.2% above the long-term trend growth rate. Average US GDP growth over the period 2000-19 is about 2%, implying a growth rate of 1.8% for the year ending 2/11. The OECD Weekly Tracker reading of 3.0% is interpretable as an annual growth rate of 3.0% for the year ending 2/25.
The OECD Weekly Observer continues to rise, even as the other two series slowly decline. It is important to remember that the WEI relies on correlations in ten series available at the weekly frequency (e.g. jobless claims, fuel sales, retail sales), while the WECI relies on a model with mixed frequency dynamic factors. The Weekly Tracker – at 3.0% – is a “big data” approach that uses Google Trends and machine learning to track GDP. As such, it is not based on actual economic indices per se.
Returning to recession forecasts, Prakken and Herzon of S&P Global Market Intelligence (née IHS Markit) write in today’s US Forecast Flash:
− S&P Global Market Intelligence has revised its 2023 real GDP growth forecast upward from 0.7% to 1.0%, measured year-over-year.1 The revision primarily reflects an upward revision our estimate of Q1 growth, from -1.3% last month to -0.4% this month, due to surprisingly strong consumer spending in January, which was only partially offset by downward revisions to net exports and inventory investment.
We expect the economy to contract by only 0.1% in the second quarter, when a counter-cyclical rebound in vehicle production will add about 0.6 percentage points to GDP growth. Although the baseline forecast shows two consecutive quarterly declines in GDP, the episode could be better characterized as a pause in activity rather than an outright recession, as output fell only 0.1% over the two quarters. Positive but below-trend growth resumes in the second half.