There’s no need to fret about the timing of a US recession anymore,
according to Wells Fargo Investment Institute — because we’re already
in one.
The investment strategy arm of the bank says the US is entering a
recession in the second half of the year — in other words, now —
amid inflation that’s faster and more broad-based than expected,
weakening consumer sentiment and corporations flagging a shift in
spending. That forecast differs from just over a month ago when the
group saw a mild recession and not until the end of this year, but
moved up the timing and the severity to “moderate.”
While several major Wall Street players like Guggenheim and Nomura
Securities see a recession by the end of next year, the institute’s
call marks one of the first to say a downturn is happening now. It
even differs from Wells Fargo’s own economists in a separate
department, who forecast only a mild recession and not until mid-2023.
Read more: Forget the Wall Street Debate: It Already Feels Like a Recession
“There’s the technical part of the recession, but then there’s the
meaningful deterioration in consumption and employment,” said Sameer
Samana, a senior global market strategist in the investment group.
“The technical part is the first-half story and the brunt of the
unemployment and consumption is the second-half” of the year, he said
by phone Thursday.
US GDP fell an estimated 1.6% in the first quarter, and real-time data
from the Federal Reserve Bank of Atlanta sees a drop of a similar
magnitude in the three months ended June 30 — but the government’s
official report of a preliminary estimate won’t be released until
later this month.
Read more: Economists Sour on US Outlook After Spending Stumbles
Should that show a negative print, the US would be in a technical
recession. But a more broadly used measure — and one used by the
National Bureau of Economic Research, the private organization
responsible for calling the official timing of a recession — is a
marked decline across the economy in a range of indicators, including
the labor market, investment, and spending.
That’s what Samana’s group said will be felt by Americans for the rest
of this year. They now forecast unemployment rates of 5.2% by the end
of 2023, and 4.3% this year, both marked up from their previous
forecasts of 4.4% and 3.8% respectively.
The unemployment rate in June is predicted to hold at 3.6% — near the
lowest in more than 50 years — ahead of government data to be
released Friday.
Consumer prices, already rising at the fastest pace in 40 years, are
expected to have accelerated further in June to 8.8% from the prior
year, ahead of government data released next week. That will force the
Fed to act more aggressively in raising interest rates to cool price
growth, leading to a bigger shock to the labor market and spending,
according to Samana.
He also noted recent commentary from retailers Walmart Inc. and Target
Corp., who have flagged a shift in what people are buying as prices
accelerate. That’s been marked by more spending on basics such as food
and fewer discretionary purchases like clothing.