Recession countdown starts now, economists warn

Recession countdown starts now, economists warn

According to Oxford Economics economist Bob Schwartz, this is one of the most unloved U.S. economies on record.

When judged by those who think economic conditions are about to fall into recession, the economic situation is about as bad as that.

A recession akin to 1969 -- 1970 awaits the U.S. next year, economist warns.

The economy has never been so unloved as it is now, he wrote in a Dec. 2 research note published by a job market and continued strength in consumer spending. The economists believe that a recession will occur over the next year, more than any time on record. The countdown to a recession starts now, according to these bond market signals.

The probability of a recession is the highest since 1969, based on survey data from mid-November that Oxford Economics, along with Haver Analytics, is using to gauge economists' views on the likelihood of a recession over the next 12 months, according to a chart by Schwartz, who said the Federal ReserveFederal Reserve is contributing to this downbeat sentiment because Chairman Jerome Powell reiterates his commitment to quashing inflation by raising interest rates, even if it means the economy is hurtling into recession.

The Wall Street Journal spokesman Gunjan Banerji, citing Deutsche Bank data, said net bearish positions tied to stock futures recently touched the highest level of the last decade this year, as well as the gloomy economic outlook. The Dow Jones Industrial Average DJIA, the S&P 500 index SPX and the Nasdaq Composite Index COMP all ended Monday with a much lower closing due to investors fear that a too-strong employment report will cause the U.S. central bank to lift interest rates even further to cool an overheated economy and suppress inflationary pressures before they become established.

The November jobs report on Friday showed that the U.S. economy gained 260,000 jobs last month, with the unemployment rate holding steady at 3.7%. Economists polled by the Wall Street Journal had predicted an addition of 200,000 jobs.

Inflation was a key factor in the rise in wages by 0.6% in November, double the expected pace, and wages are still rising faster than before the pandemic, when they rose about 2% to 3% a year.

Labor demand is still strong and is an important measure of the economy's vitality.

If you're questioning how that translates to a recession, you're not alone. It isn't clear when or even if a recession will occur in the next few quarters of negative GDP growth.

That is the belief that the Fed needs to do more harm if it wants to dislodging inflation from its perch and bringing it closer to the 2% level that the Fed deems acceptable for a healthy economy. The inflation rate for October was 7.7%, much higher than what Powell and the Fed officials are comfortable with, even though the data showed signs of a slowing pace of inflation.

Schwartz told MarketWatch that Oxford sees a recession in the U.S. in the second half of 2023, which is a downgrade from expectations for the first half.

Many pros think the recession will be short-lived and shallow if it comes, but recessions don't exist in hypotheticals, so we'll only be able to assess after we've come out the other side.