Recession, Immigration, & the Enduring Value of the Dollar

A Belated July 2022 Q&A Post

The vast majority of the questions this month were about recession, most of which are covered in the first two answers below. Feel free to send in questions for the August Q&A post now, and hopefully we’ll get that one out before September.

Are politicians lying to us by changing the definition of a recession? Aren’t we in one now? Why not? Will we be soon?

Politicians lie all the time, of course, but the ones who indicate that we are not in recession aren’t (not yet, anyway). Here’s the way I think of it. A recession typically involves too much supply and too little demand. What we’ve suffered for more than a year is the exact opposite: too little supply relative to demand.

Now, I know what you’ll say: “Hey pinhead, GDP is GDP, and we’ve had two consecutive quarters of negative growth. That’s a recession, man!” Well, it does satisfy an informal definition of recession, but not the actual definition. After all, demand for goods and services remains very high, which is why your airfares have touched the sky and you can’t find the precise appliance you want. Please note that the economy has been expanding in nominal terms, but when we adjust for sky-high inflation, real growth turns negative.

I think the best evidence countering the recession contention relates to labor market performance. Payroll employment tends to decline during periods of recession. In 2008 and 2009, we lost about 8.6 million jobs, or 360,000 jobs per month. The first six months of 2022, however, saw payroll employment expand by more than 2.7 million jobs, or 457,000 jobs per month. It’s hard to call that a recession.

For their part, employees tend to cling to their jobs during recession due to a heightened desire for job security. In 2009, an average of 1.3% of all employees quit their jobs each month. Through the first half of 2022, an average of 2.9% of employees have quit their job each month, higher than at any point during the 20+ years for which the BLS maintains pertinent data. In other words, the labor market is strong, and many employees feel comfortable leaving their current jobs.

Retail sales also tend to decline during a recession. In 2008-09, retail sales fell more than 9% in nominal terms. During the first half of 2022, retail sales were up nearly 7%. So not only are employees not acting like we’re in recession, neither are consumers.

Finally, the official arbiter of recessions is the National Bureau of Economic Research’s Business Cycle Dating Committee, a group of superstar academic economists led by Robert Hall of Stanford. They haven’t proclaimed recession, and based on employment, retail sales, and industrial production, I wouldn’t either.

When we all agree the Recession has begun, what are your thoughts on length and severity?