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The US economy didn't get the recession memo – CNN

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New York (CNN Business)The American economy didn’t get the memo that it’s supposed to already be in a recession.

The brutal GDP report released on July 28, showing the economy had contracted for a second quarter in a row, led some to insist the much-feared recession had already arrived.
And in some ways that makes sense: Since 1948, every period of back-to-back quarters of negative growth coincided with a recession.
But the recession-is-already-here argument has been severely undermined since that GDP report came out. A series of events in the past 10 days suggest those recession calls are, at a minimum, premature.
Yes, the economy is cooling off after last year’s gangbusters growth. But no, it does not appear to be suffering the kind of downfall that would qualify as a recession.
Consider the following developments:
  • The economy added more than half a million jobs in July alone.
  • The unemployment rate dropped to 3.5%, tied for the lowest level since 1969.
  • Inflation chilled out (relatively speaking) in July for both the consumers and producers.
  • Gas prices tumbled below $4 a gallon for the first time since March.
  • Consumer sentiment has bounced off record lows.
  • The stock market notched its longest weekly winning streak since November.
Mark Zandi, chief economist at Moody’s Analytics, has only grown more confident that the US economic recovery is intact.
“This is not a recession. It’s not even in the same universe as a recession,” Zandi told CNN. “It’s just patently wrong to say it is.”
Zandi said the only thing signaling an ongoing recession is those back-to-back quarters of negative GDP. Yet he predicted those GDP declines will eventually get revised away. And there are early indicators that GDP will turn positive this quarter.
Of course, none of this means the economy is healthy. It isn’t. Inflation remains way too high.
And none of this means the economy is out of the woods. It isn’t.
A recession remains a real risk, especially next year and in 2024 as the economy absorbs the full impact of the Federal Reserve’s monster interest rate hikes.
And it remains possible that the economy stumbles so much in the months ahead that economists at the National Bureau of Economic Research, the official arbiter of recessions, eventually declare that a recession began in early 2022. But for now, it’s way too early to say that’s the case.

Job market is still hot

The biggest issue in arguing that a recession has already begun is the fact that hiring ramped up — dramatically — in July. The United States added a staggering 528,000 jobs last month, returning payrolls to pre-Covid levels.
An economy that’s in recession doesn’t add half a million jobs in a single month.
“I don’t think anything in the data about where we are right now in the economy is consistent with what we typically think of as a recession,” Brian Deese, director of the White House National Economic Council, told CNN in a phone interview last week.
If anything, the job market is too hot. And that is a problem for the months ahead because it allows the Federal Reserve to aggressively raise interest rates without resulting in widespread damage to the labor market in its bid to slow the economy down.
The risk is that the Fed ends up slamming the brakes so hard that it slows the economy right into a recession.
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Inflation is cooling off, finally

There is a growing sense that perhaps the worst is over on the inflation front.
The biggest inflation headache — gasoline prices — is finally easing in a big way. The national average for regular gasoline has now plunged by more than $1 since hitting a record high of $5.02 a gallon in mid-June.
Beyond gasoline, diesel and jet fuel prices are also falling, easing inflationary pressure on the rest of the economy.
The energy cooldown lowered inflation metrics in July and should do the same, if not more so, in August.
The Bureau of Labor Statistics said last week that consumer prices were 8.5% higher in July than they were a year earlier. Although that remains alarmingly high, it is down from the 40-year high of 9.1% in June. And, month over month, prices were little changed.
Wholesale inflation may also be peaking. The producer price index, which measures prices paid to producers for their goods and services, decelerated in July by more than anticipated on a year-over-year basis. And PPI declined month over month for the first time since the economy was shut down in April 2020.
The better-than-expected inflation reports reflect not just lower energy prices but easing stress in supply chains scrambled by Covid-19.

What a recession would feel like

In some ways, the recession debate is semantics.
Recession or not, Americans are clearly hurting right now because the cost of living is too high. Real wages, adjusted for inflation, are shrinking. And although consumer sentiment as measured by the University of Michigan has climbed two months in a row, it remains near record lows.
However, for many, an actual recession would be far more painful than today’s environment.
A recession would likely involve the loss of not just hundreds of thousands but millions of jobs. Unable to make their mortgage payments, families would face foreclosure on their homes. And small, medium and large businesses would go under.
None of those things are happening in a significant way, at least not yet.
But flashing red lights in the bond market suggest that could change.
The yield curve — specifically, the gap between 2-year and 10-year Treasury yields — remains inverted. And in the past, this has been an eerily accurate predictor of recessions. It has preceded every recession since 1955.
In all, recent economic data suggests that the potential recession may have been delayed, not canceled altogether.
While the risk of a recession over the next six to nine months appears to have gone down, Zandi said, the risk of one in the next 12 to 18 months has gone up.
“Recession odds are still uncomfortably high,” he said.

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Theo Argitis: Taking stock of Canada’s complicated economy before tomorrow’s Bank of Canada decision – The Hub

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Theo Argitis: Taking stock of Canada’s complicated economy before tomorrow’s Bank of Canada decision  The Hub

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Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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