My 18 Months Of Being Correct (But Lonely) In Calling No-Recession

Expressing optimism can be difficult: there is a wide tendency to regard doomsayers as “sophisticated” and silver-lining-finders as “naïve.”

Bank of America’s
BAC
announcement yesterday reversing its prediction of a coming recession prompted me to revisit the statements I’ve published over the past 18 months, during which I consistently pushed against the dominant recession-is-coming narrative.

• 2022Q1 Quarterly Markets Report: “A few economists, most prominently those at Deutsche Bank, have already forecast a U.S. recession in 2023. … Three related sources of strength suggest that overall economic conditions are likely to remain favorable: labor markets, personal incomes, and consumer spending.”
• Widely distributed internal commentary April 1, 2022: “The yield curve inversions this week would have worried me if yesterday’s Personal Income & Outlays report or today’s Employment Report had been weak, but they weren’t—so I think the right thing to do, at least for now, is to treat it as a false alarm.”
• Widely distributed internal commentary April 27, 2022: “While some are crying out that ‘a recession has started,’ I think that’s completely wrong.”
• Widely distributed internal commentary July 8, 2022: “In a recession we generally see weakness in employment, income, and consumption. I’m still waiting for data that convinces me we’re seeing genuine weakness in any of those three, never mind all three.”
• LinkedIn article August 12, 2022: “Taken together, the data continue to reinforce the idea that the U.S. is NOT in a recession.”
• 2022Q3 Quarterly Markets Report: “The fact that all three pillars of macroeconomic strength remain firm means that we simply are not in a recession, technical or otherwise.”
• Widely distributed internal commentary November 11, 2022: “In general, macroeconomic conditions reinforce the fact that the economy is not currently in a recession.”
• Widely distributed internal commentary November 23, 2022: “The general consensus remains that there is likely to be a mild recession next year, but data like these are increasingly causing me to question whether even a mild recession will materialize.”
• Widely distributed internal commentary December 2, 2022: “I’ve been continuing to develop my own inflation forecasting model, and it still isn’t providing a strong signal of a coming recession.”
• 2022Q4 Quarterly Markets Report, which attached 50% chance to a mild recession, 30% to a soft landing, and 20% to a significant recession: “The simple question is this: with the conditions for recession having been in place for some six months, why haven’t the recessionary conditions actually materialized?”
• LinkedIn article January 6, 2023: “My model still doesn’t predict a recession: the probability sits as just 22% following this morning’s employment report.”
• Forbes.com article February 3, 2023: “it’s important to understand that the jobs market now looks Nothing. Like. The Great Recession.”
• Widely distributed internal commentary March 3, 2023: “There is still a solid chance that the economy will enter a recession toward the end of this year. The continued resilience, however, has reduced the likelihood: my latest recession probability model puts it at just 37% by next January.”
• 2023Q1 Quarterly Markets Report: “While some market participants have been forecasting for more than a year that the U.S. economy will go into a recession—with most foreseeing a mild one but a few calling for a severe one—actual economic conditions have stubbornly refused to comply.”
• Widely distributed internal commentary May 5, 2023: “I think there’s a solid chance that we may end up seeing the very first example of a solidly negative [Near-Term Forward Spread] that doesn’t lead to a recession.”
• Forbes.com article May 16, 2023: “the U.S. economy is likely to avoid a recession altogether.”
• Forbes.com article June 30, 2023: “the strength in housing construction brought the probability of a recession down by about 17 percentage points according to my forecasting model.”
• 2023Q2 Quarterly Markets Report: “the likelihood of any recession has diminished sharply in favor of the increasingly convincing prospect of a soft landing.”
• Forbes.com article August 1, 2023: “the likelihood of a recession has plummeted. … [U]pdating the model using data through June (that is, the latest data available by the end of July) brings the probability down to just 15%.”

To be clear, I have never said that a recession could not or would not occur. Instead, I have consistently said that there was not an adequate basis for making a clear-eyed recession prediction. And that remains my position.