Even Mainstream Economists See a Recession Coming

We’ve been writing and warning about a recession since early this year.

The technical definition of a recession is two consecutive quarters of declining GDP with some discretionary factors, such as the unemployment rate, thrown into the mix for good measure. We actually did have two consecutive quarters of declining GDP in the first and second quarters of 2022, but the dip was mild, and no one at the authoritative National Bureau of Economic Research seemed to notice; at least they did not declare a recession. As of now, there is still no technical recession although the warning signs keep growing.

For perspective, there’s a difference between identifying a coming recession and forecasting the precise timing. It is possible to see a recession coming based on a barrage of fundamental indicators (reduced consumption, lower savings, declining industrial output, etc.). Yet, few things in economics are more difficult than accurately forecasting the exact start of a recession.

I’ve only known one economist, John Makin, who could call the timing consistently. Sadly, he passed away a few years ago. The rest of us are on our own.

One of the best signs of a recession is when more mainstream or middle-of-the-road economists start sounding the warning. There are perma-bears who call for recession constantly (and everyone who does that is right eventually; recessions do happen).

I’m not a perma-bear, but I do use predictive analytics to look as far ahead as possible so I can be a bit early in the warning game. But Mohamed El-Erian is not in either camp.

He generally expects strong growth and is an optimist even in the face of adverse data. So, when he warns of a recession, you can be fairly certain that it’s either already here or arriving soon.

I’ll continue to offer my forecasts using the best methods available and ample data. But one of my data points would include a warning from El-Erian. Investors take heed.

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