News/Commentary

Economists sound the alarm: Don’t believe Biden, ‘the US economy will enter a recession this year’

January 16, 2023 | | Print Article

Despite assurances from the White House that the economy will be fine, conservative Americans have been sensing for a while now that we are either already in a recession or on the precipice of one. But when uber-liberal CNN publishes an op-ed from the co-founders of the Economic Cycle Research Institute (ECRI) warning the nation that “a recession really is coming,” it’s time to take notice.

As some economists continue to insist the strength of the labor market and household balance sheets will shield the country from a recession, Lakshman Achuthan and Anirvan Banerji say, “We disagree.”

“Despite the relatively robust job growth we’ve been seeing, the Economic Cycle Research Institute (ECRI), which we co-founded, has been predicting recession since last spring, and it remains our expectation that the US economy will enter a recession this year,” they ominously write.

The duo notes that the Federal Reserve has been raising interest rates since March of 2022, “and very sharply since June,” in an effort to slow down spending and put a damper on inflation.

“The problem is that, by the time the Fed began hiking rates, the economy was already slowing, making recession more likely,” they explain.

Particularly vulnerable to higher interest rates is the goods sector, which is already experiencing tanking factory orders. And mortgage rates are surging, resulting in fewer housing starts and new building permits and a drop in residential construction spending.

“Meanwhile, the purchasing managers’ index for manufacturing, which measures the month-over-month change in manufacturing activity, fell below 50 in the last two months, implying that a manufacturing contraction is underway,” Achuthan and Banerji state. “Moreover, its service sector equivalent has also slipped under the 50 mark, suggesting that services activity has started to decline.”

Radio Hall of Famer and controversial conservative commentator, Glenn Beck, has been sounding the alarms for months.

In September 2022, he tweeted, “The Fed just raised rates by 0.75 points for the THIRD time this year. Americans already know we’re in a recession. They feel it at the gas pumps and grocery stores.”

“The system is RIGGED,” he declared.

In October 2022, even the United Nations warned of a global recession.

“The UN called on the central banks of the US and Europe ‘to revert course and avoid the temptation to try to down prices by relying on even higher interest rates,'” BizPac Review reported at the time. “Further they argue. ‘Lower inflation targets are not worth the pain of continuing hikes in interest rates.'”

Still, President Biden is boasting about his economic “achievements.”

“When I ran for president, the economy was flat on its back. But we got to work, putting in place a new strategy that would grow the economy from the bottom up and middle out,” he tweeted last week. “Two years in, more Americans are working than ever before. Our plan is delivering.”

With Elon Musk now at the Twitter helm, fact-checkers quickly descended on the tweet to set the record straight.

“More total Americans are working than ever before,” they wrote. “However, the labor participation rate is lower than a previous record.”

“Recessions always entail noticeable declines in both GDP and jobs, but such pullbacks are not necessarily obvious at the recession’s outset,” say Achuthan and Banerji. “While GDP and jobs do move in step with the economy, by the time they are released, they only tell us where the economy had been in the recent past.”

“Employment, in particular, can hold up longer than expected in a recessionary scenario,” they add. “That was true in the inflationary era around the 1970s. Most notably, employment didn’t peak until eight months after the start of the severe 1973-1975 recession.”

The economists explain:

The reluctance to let employees go back then, and in today’s economy, could be due to the “money illusion,” where business owners tend to view their revenues in nominal dollar terms instead of recognizing its real value, adjusted for inflation. So even if their revenues are rising in dollar terms, the purchasing power of those dollars is falling due to inflation, and buys less labor and raw materials.

In fact, in a recession, inflation-adjusted revenues typically fall in any case, as customers make fewer or smaller purchases that cost them more because of inflation. Inflation also forces business owners to pay more for everything they buy, including employee wages and salaries. As a result, their profits get squeezed, which is why many eventually end up implementing layoffs.

Indeed, as BizPac Review has reported, Goldman Sachs announced it began laying off more than 3,000 employees last week, and the world’s largest asset manager, BlackRock, announced it will cut 500 of its roughly 20,000 employees.

“We saw a mirror image of today’s economy in the spring and summer of 2008, when the Great Recession, which started in December of 2007, was already underway,” Achuthan and Banerji write. “Then, many — including then-President George W. Bush — were not concerned about a recession because GDP hadn’t declined yet, even though job losses had begun.”

Today, the economists stand by their prediction for our current situation.

“Our recession forecast hasn’t wavered,” they state. “We should all be prepared.”

Melissa Fine
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