Fact Check: The US is headed into a recession.

The Claim: "The US is headed into a recession."

Introduction

The assertion that the United States is on the verge of a recession has gained traction in various economic discussions and analyses. This claim arises from a combination of economic indicators, expert forecasts, and market sentiments. However, the situation is complex, with differing opinions on the likelihood and timing of a potential downturn.

What We Know

1. Economic Projections: The Congressional Budget Office (CBO) provides periodic updates on the economic outlook, with its latest report indicating a slowdown in economic growth but not explicitly forecasting a recession by 2025 12.

2. Market Sentiment: Recent reports from J.P. Morgan have increased the odds of a global recession to 60%, citing U.S. policies as a contributing factor 3. This reflects a growing concern among financial institutions about the economic trajectory.

3. Leading Indicators: An article from Reuters discusses how traditional leading indicators, which have historically predicted recessions, have failed to signal an imminent downturn, raising questions about their reliability 4.

4. Employment Data: Despite fears of a recession, employment data has remained robust in the first half of 2023, suggesting that the economy is not yet in a downturn 6.

5. Yield Curve Analysis: The St. Louis Federal Reserve has analyzed yield spreads, which are often used to predict recessions. Their findings indicate a mixed outlook, with some signals suggesting a higher probability of recession within the next year 7.

6. Prediction Markets: Data from prediction markets shows that traders are increasingly betting on the likelihood of a recession, reflecting a shift in sentiment among investors 5.

Analysis

The evidence surrounding the claim that the U.S. is headed into a recession is multifaceted and comes from various sources, each with its own strengths and weaknesses.

• CBO Reports: The CBO is a nonpartisan agency that provides economic forecasts based on current laws and economic conditions. However, its projections can be influenced by political factors, and the agency's forecasts are often conservative 12.

• J.P. Morgan's Forecast: As a major financial institution, J.P. Morgan's analysis carries weight, but it is important to consider potential biases. Their forecasts may be influenced by their interests in market stability and investment strategies 39.

• Leading Indicators: The Reuters article highlights the limitations of leading indicators, suggesting that they may not be as reliable in the current economic climate. This raises questions about the methodologies used to assess these indicators and their predictive power 4.

• Employment Data: The strength of employment figures is often seen as a counterpoint to recession fears. However, it is essential to consider that employment can remain stable even in the early stages of a recession, making it a lagging rather than a leading indicator 6.

• Yield Curve: The analysis of yield curves is a well-established method for predicting recessions. However, the interpretation of these curves can vary, and they may not always provide clear signals about future economic conditions 7.

In summary, while there are credible sources suggesting an increased likelihood of recession, there are also significant indicators that challenge this narrative. The diversity of opinions and data highlights the complexity of economic forecasting.

Conclusion

Verdict: Partially True

The claim that the U.S. is headed into a recession is partially true, as there are credible indicators suggesting a potential downturn, while other data points indicate stability. Key evidence includes the CBO's cautious economic projections, J.P. Morgan's heightened recession odds, and mixed signals from yield curve analyses. However, robust employment data and the failure of traditional leading indicators to signal an imminent recession complicate the narrative.

It is important to recognize that economic forecasting is inherently uncertain, influenced by a multitude of factors that can change rapidly. The varying interpretations of data and the potential biases of forecasting institutions contribute to this uncertainty. Readers should critically evaluate the information presented and consider the broader context when assessing claims about the economy.

Sources

1. Congressional Budget Office. "The Economic Outlook for 2023 to 2033 in 16 Charts." CBO
2. Congressional Budget Office. "An Update to the Economic Outlook: 2023 to 2025." CBO
3. Reuters. "Global brokerages raise recession odds; J.P.Morgan sees ..." Reuters
4. Reuters. "The elusive US recession and its 'misleading' indicators." Reuters
5. NBC News. "Are we heading into a recession? Here's what the data shows." NBC News
6. Forbes. "Are We On The Brink Of Recession? A Look At The Latest Indicators." Forbes
7. St. Louis Federal Reserve. "What Is the Probability of a Recession? The Message from Yield Spreads." St. Louis Fed
8. Deloitte. "United States Economic Forecast Q1 2025." Deloitte
9. J.P. Morgan Research. "What Is the Probability of a Recession?" J.P. Morgan
10. Conference Board. "US Leading Indicators." Conference Board