The Upcoming Unusual Recession
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oday, something highly unusual is happening. Economic output fell in the first quarter and signs suggest it did so again in the second. Yet the job market showed little sign of faltering during the first half of the year. The jobless rate fell from 4% last December to 3.6% in May.
It is the latest strange twist in the odd trajectory of the pandemic economy, and a riddle for those contemplating a recession. If the U.S. is in or near one, it doesn’t yet look like any other on record.
Analysts sometimes talked about “jobless recoveries” after past recessions, in which economic output rose but employers kept shedding workers. The first half of 2022 was the mirror image—a “jobful” downturn, in which output fell and companies kept hiring. Whether it will spiral into a fuller and deeper recession isn’t known, though a growing number of economists believe it will.
Some companies, especially in the tech sector, have given indications that they’re pulling back on hiring, though across the broad economy the job market has rarely looked stronger.
At the end of June, 1.3 million Americans were collecting federal unemployment checks, substantially fewer than the 1.7 million people collecting them on average each week during the three years before the pandemic, when the economy was considered to be exceptionally strong. The number of people receiving such benefits topped 6.5 million during the 2007-09 recession and exceeded 3 million during the two earlier downturns.
Even the most pessimistic economists see a modest jobs downturn in the months ahead.
About two in five economists surveyed by the Journal in June said they saw at least a 50-50 chance that the U.S. enters recession in the coming year, but among them, few saw a big increase in the jobless rate. They forecast a 3.9% unemployment rate at the end of this year and a 4.6% unemployment rate at the end of 2023. The U.S. has never had a recession in the post-World War II era with a jobless rate that low.
“The U.S. is in, or on the precipice, of a shallow but yearlong recession. This will assist the Fed in its inflation fighting efforts,” said Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, in the Journal’s survey. He sees the jobless rate rising to 6% by the end of 2023, the only person in the survey who saw the rate reaching that level in the next 18 months.
