Fact Check: Are we going into a recession?

Are We Going Into a Recession?

The question of whether the economy is heading into a recession has gained significant attention amid fluctuating economic indicators and expert opinions. As of late 2023, various sources present differing assessments of the likelihood of a recession, with some suggesting an imminent downturn while others indicate resilience in the economy.

What We Know

1. Economic Indicators: The Sahm Rule, which tracks changes in unemployment rates, suggests a declining risk of recession as of March 2023, indicating a resilient labor market 1. However, the Conference Board's leading economic index showed a decline of 0.5% in November 2023, aligning with forecasts of a mild recession in 2024 6.

2. Stock Market Performance: The S&P 500 index has risen over 15% in 2023, which some analysts interpret as a sign of optimism regarding the economy 2. Conversely, the inverted yield curve, particularly the 10-year minus 2-year Treasury yield spread, has historically been a reliable indicator of a recession within 12 months 10.

3. Expert Opinions: A report from the World Economic Forum indicates that economists are divided on the chances of a global recession in 2023, reflecting a range of perspectives on the economic outlook 3. The New York Federal Reserve's model estimates a 66% probability of recession based on yield spreads, suggesting a significant level of concern among economists 7.

4. Global Context: While some regions express cautious optimism, significant uncertainties remain, particularly in the context of global economic pressures 10. The consensus among economists varies, with some highlighting the potential for growth while others warn of impending challenges.

Analysis

The claim regarding the potential for a recession is supported by a mix of economic indicators and expert opinions, yet it remains contentious.

• Source Reliability: The sources cited range from established news organizations like NBC News and Forbes, which generally have a reputation for journalistic integrity, to specialized economic reports from the World Economic Forum and the Federal Reserve. While these sources are credible, it is important to note that they may have varying biases based on their institutional perspectives. For instance, the World Economic Forum often emphasizes global collaboration and innovation, which may influence its economic outlook 3.

• Conflicting Evidence: The divergence in expert opinions highlights the complexity of economic forecasting. While some indicators, such as rising stock prices, suggest economic strength, others, like the inverted yield curve, signal potential weakness. This duality reflects the inherent uncertainty in economic predictions, where different models and methodologies can yield contrasting results.

• Methodological Concerns: The methodologies used to assess recession risk, such as the Sahm Rule and yield curve analysis, are well-established but can be influenced by external factors, such as government policy changes and global economic conditions. For instance, the reliance on historical data in the New York Fed's model may not fully account for unprecedented economic events, such as the COVID-19 pandemic's long-term effects 7.

• Need for Additional Information: To better understand the recession risk, further data on consumer spending, business investment, and inflation trends would be beneficial. These factors play a crucial role in shaping economic conditions and could provide a more comprehensive picture of the economic landscape.

Conclusion

Verdict: Unverified

The assessment of whether the economy is heading into a recession remains unverified due to the conflicting evidence and varying expert opinions. Key indicators, such as the Sahm Rule suggesting a resilient labor market and the inverted yield curve indicating potential recession risks, present a mixed picture. The divergence in expert forecasts, with some economists predicting growth while others foresee challenges, adds to the uncertainty surrounding this issue.

It is important to acknowledge the limitations in the available evidence. Economic predictions are inherently uncertain and can be influenced by numerous external factors, including government policies and global economic conditions. The methodologies used to assess recession risk, while established, may not fully capture the complexities of the current economic landscape.

Readers are encouraged to critically evaluate the information presented and consider the nuances of economic forecasting before drawing conclusions about the likelihood of a recession.

Sources

1. NBC News. "Are we heading into a recession? Here's what the data shows." Link
2. Forbes. "Are We On The Brink Of Recession? A Look At The Latest Indicators." Link
3. World Economic Forum. "Chief economists on what lies ahead for the world in 2023." Link
4. Conference Board. "US Leading Indicators." Link
5. JPMorgan. "Five factors we use to track recession risk, and what they say now." Link
6. U.S. News. "Leading Indicators Fall Again, Flashing Recession Signals, as Other Data Shows a More Positive Vibe for the Economy." Link
7. Federal Reserve Bank of St. Louis. "What Is the Probability of a Recession? The Message from Yield Spreads." Link
8. Morningstar. "The Advisor's Cheat Sheet to Recession Indicators." Link
9. Charles Schwab. "A Future Uncertain: Recession Coming?" Link
10. Bain & Company. "Global Recession Watch: The Latest Data." Link