Skip to main content
logo
  • Investment Strategies

    Investment Options

    • Alternatives
    • Beta Strategies
    • Equities
    • Fixed Income
    • Multi-Asset Solutions

    Capabilities & Solutions

    • Pension Strategy & Analytics
    • Global Insurance Solutions
    • Outsourced CIO
    • Sustainable Investing
  • Insights

    Market Insights

    • Market Insights Overview
    • Eye on the Market
    • Guide to the Markets
    • Guide to Alternatives
    • Market Updates

    Portfolio Insights

    • Portfolio Insights Overview
    • Alternatives
    • Asset Class Views
    • Currency
    • Equity
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Sustainable Investing Insights
    • Strategic Investment Advisory Group
  • Resources
    • Center for Investment Excellence Podcasts
    • Events & Webcasts
    • Insights App
    • Library
    • Market Volatility
    • NEW Morgan Institutional
  • About Us
  • Contact Us
  • English
  • Role
  • Country
  • Morgan Institutional
    Search
    Search
    Menu
    You are about to leave the site Close
    J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
    CONTINUE Go Back
    1. Are we already in a recession?

    • LinkedIn Twitter Facebook Line

    Are we already in a recession?

    2022-07-06

    David Lebovitz

    Looking ahead, we recognize that recession risk has risen. That said, it seems premature to make a call that we are already in recession today.

     David M. Lebovitz

    David M. Lebovitz

    Global Market Strategist

    Listen to On the Minds of Investors

    2022-07-06

    Show Transcript Hide Transcript

    David Lebovitz:                 

    Hello. My name is David Lebovitz, and I'm a Global Market Strategist at J.P. Morgan Asset Management. Welcome, to On the Minds of Investors. This week, I'd like to talk a little bit about whether or not we are already in an economic recession.

    The first quarter of this year saw the US economy contract, as slower inventory growth and a growing trade deficit offset strength in consumption and investment. Recently, recession fears have bubbled to the surface, as the Federal Reserve Bank of Atlanta is now cast of economic growth now points to a contraction in the second quarter. This tracker, appropriately named GDPNow, is based on a series of rigorous mathematical techniques and uses appropriate reference data to compute weekly estimates of aggregate GDP's 13 sub-components. Real GDP is then calculated using a methodology similar to that, of the U.S. Bureau of Economic Analysis.

    The latest projection suggests that 2Q real GDP will decline by 2.1%, due to a significant slowdown in consumer spending, and a contraction in private investment. This is in stark contrast to the Atlanta Fed's maximum second quarter forecast of two and a half percent in mid-bay. The Atlanta Fed's recent reading has garnered much attention, because if realized, it would indicate that the US economy has met the back of the napkin definition of a recession, two consecutive quarters of negative economic growth. Importantly however, this is a heuristic. The National Bureau of Economic Research is the official scorekeeper of US recessions. Looking ahead, we recognize that recession risk has risen. That said, it seems premature to make a call that we are already in recession today. To start the labor market remains robust, with job opening still elevated, wage growth solid, and payroll employment growing at a rapid clip.

    Furthermore, many of the pain points in the economy have begun to correct themselves. Commodity prices have come off the boil, inflation looks to have peaked, and market expectations are now for the Federal Reserve to begin cutting rates in 2023. For investors, it is important to remember that markets are forward looking. Put differently, the equity market tends to peak before a recession starts, and trough before the economic data begins to improve. While risks to the outlook have risen, valuations have become more favorable, and sentiment is beginning to look washed out. This is not an attempt to call the bottom, but rather a recognition that the outlook for risk assets is more favorable today, than it was the case at the start of this year.

    The first quarter saw the U.S. economy contract, as slower inventory growth and a growing trade deficit offset strength in consumption and investment. Recently, recession fears have bubbled to the surface, as the Federal Reserve Bank of Atlanta’s “nowcast” of economic growth now points to a contraction in 2Q22. This tracker – appropriately named GDPNow – is based on a series of rigorous mathematical techniques and uses appropriate reference data to compute weekly estimates of aggregate GDP’s 13 subcomponents. Real GDP growth is then calculated using a methodology similar to that of the U.S. Bureau of Economic Analysis.

    The latest projection suggests that 2Q22 real GDP will decline 2.1% due to a significant slowdown in consumer spending and a contraction in private investment. This is in stark contrast to the Atlanta Fed’s maximum 2Q22 forecast of 2.5% in mid-May. The Atlanta Fed’s recent reading has garnered much attention, because, if realized, it would indicate that the U.S. economy has met the “back of the napkin” definition of recession – two consecutive quarters of negative economic growth. Importantly, however, this is a heuristic; the National Bureau of Economic Research (NBER) is the official scorekeeper of U.S. recessions.

    Looking ahead, we recognize that recession risk has risen. That said, it seems premature to make a call that we are already in recession today. To start, the labor market remains robust, with job openings still elevated, wage growth solid, and payroll employment growing at a rapid clip. Furthermore, many of the pain points in the economy have begun to correct themselves – commodity prices have come off the boil, inflation looks to have peaked, and market expectations are now for the Federal Reserve to begin cutting rates in 2023.

    For investors, it is important to remember that markets are forward looking. Put differently, the equity market tends to peak before a recession starts and trough before the economic data begins to improve. While risks to the outlook have risen, valuations have become more favorable and sentiment is beginning to look washed out; this is not an attempt to call the bottom, but rather a recognition that the outlook for risk assets is more favorable today than was the case at the start of the year.

     

    Atlanta Fed GDPNow tends to over-estimate growth
    BEA advance estimate less pre-announcement nowcast, %

    A chart showing how Atlanta Fed GDPNow tends to over-estimate growth.

    Sources: Atlanta Fed, BEA, J.P. Morgan Asset Management.
    Data are as of July 6, 2022.

    09pf221602182411

    EXPLORE MORE

    On the Minds of Investors

    What investment questions are on the minds of investors? Explore the questions investors ask frequently and find answers at J.P. Morgan Asset Management.

    Read more

    Guide to the Markets

    The J.P. Morgan Guide to the Markets illustrates a comprehensive array of market and economic histories, trends and statistics through clear charts and graphs.

    Read more

    Asset Class Views

    Get quarterly commentary and in-depth analysis on equities, fixed income and other asset classes, written by our senior investment teams.

    Read more
    • Equities
    • US economy
    • Volatility
    J.P. Morgan Asset Management

    • About us
    • Investment stewardship
    • Privacy policy
    • Cookie policy
    • Binding corporate rules
    • Sitemap
    • Conflicts of interest disclosure
    Opens LinkedIn site in new window
    J.P. Morgan

    • J.P. Morgan
    • JPMorgan Chase
    • Chase

    READ IMPORTANT LEGAL INFORMATION. CLICK HERE >

    The value of investments may go down as well as up and investors may not get back the full amount invested.

    Copyright 2022 JPMorgan Chase & Co. All rights reserved.