Catching up, and sharing views/stories

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Catching up with what I’ve missed over the last few months shouldn’t take a lot of time, but there are some questions that need to be addressed. Perhaps the biggest question is whether we are in a recession. For the next few posts, I will try to bring you up to speed on this issue.

According to the Bureau of Economic Analysis, Real GDP in Q1 of 2022 dropped 1.5% (annualized rate), with significant declines in private and residential investment. Normally, this would sound the recession “alarms”, since recessions are defined by negative GDP growth - i.e., a shrinking of the economy.

This news is also a big deal because investment drives the economy. While most people think of investment as the stock market, for economists, investment is about purchases of new machinery and other tools for production. A decline in investment can foreshadow a slowdown in hiring, which in turn can cause a slowdown in spending, which can make an already-bad situation much worse. If you add all the political uncertainty, a labor shortage, and high gas prices to the equation, someone is going to feel the strain.

Unfortunately, we just don’t have the data to understand how bad the problem is in Southern California. These are national statistics that already take a while to collect (we are almost finished with Q2 now – estimates of which should be out in late-July). Even statewide, we only have data since Q4 of 2021.

Here is what we do know. Unemployment insurance claims have been moving laterally since January, local (non-seasonally adjusted) unemployment rates continue to decline, and consumer spending has been up in recent weeks. From a purely labor market perspective, the economy is doing well. In a future article I will cover the housing market, which has shown a few signs of weakness.

Also, a few signs of a possible recession are anecdotal – there are stories on social media (mainly Twitter) of hiring freezes as firms brace themselves for the possibility of a downturn. In light of that, I would like to ask you all whether you’ve seen any signs of a recession. Any news or insight from friends or colleagues? Feel free to leave a comment below.