I’m utterly confused

Today’s Financial Times makes a claim that makes my head spin:

Of the 45 economists surveyed between December 2 and December 5, 85 per cent project that the National Bureau of Economic Research — the arbiter of when recessions begin and end — will declare one by next year.

While most of the economists expect the coming contraction to be shortlived — with gross domestic product growth still registering a 1 per cent gain by the end of next year — more than half are bracing for the unemployment rate to rise substantially from its current 3.7 per cent level to between 5.5 per cent and 6.5 per cent.

A handful of economists pencilled in an even more dire outcome, with the unemployment rate either closing in on or exceeding 7 per cent.

If you go to the link, you’ll find that the RGDP forecast is for 2022:Q4 to 2023:Q4. The median forecast for the unemployment rate in December 2023 is 4.5%. Oddly, that forecast doesn’t seem to match the consensus view that unemployment will peak at about 5.5%, and that the peak will likely occur in late 2023 or early 2024.

But that’s not what concerns me. Rather, in what universe could the US experience 1% RGDP growth in 2023 and end the year with 4.5% unemployment? What am I missing?

Some context might be useful. While the 4th quarter data for 2022 won’t be available for a few weeks, it’s pretty clear that RGDP growth for 2021:Q4 to 2022:Q4 will come in right around 1%, the same figure as being forecast for 2023. But 2022 was a boom year, with an amazing 4.5 million jobs being created. The unemployment rate fell from 3.9% in December 2021 to 3.5% in December 2022. And now we are being told that RGDP growth will continue at the same pace in 2023, and yet unemployment will shoot up to 4.5%? Really?

Companies are desperately short of workers. When I traveled over the holidays, I found service to be a complete disaster at one business after another.

Just to be clear, it would not surprise me at all if the unemployment rate did rise to 4.5% in 2023. What would surprise me is if this increase occurred during a time when RGDP was increasing at a 1% rate. What am I missing? Is AI going to suddenly cause a productivity surge in 2023?

I would not be at all surprised if there were a recession in 2023. After all, recessions often occur when anti-inflation policies are implemented.

I would not be at all surprised if there were no recession in 2023. A consensus of economists is currently predicting a recession, but the consensus of economists has been consistently wrong about every single recession over the past 40 years.

I suppose I could be accused of wimping out, refusing to put my reputation on the line. OK, so here’s my almost worthless forecast. I predict that America will experience its first ever mini-recession in 2023. The first “recession” we’ve ever had where the unemployment rate rises by less than 2 percentage points from the previous cyclical low. Whether that outcome would deserve to be called a “recession” is a question I’ll leave to others (i.e., the NBER). I don’t care.

PS. Today’s jobs report is very good news. I’m surprised that stocks aren’t up even more.



14 Responses to “I’m utterly confused”

  1. Gravatar of Solon of the East Solon of the East
    6. January 2023 at 16:30

    It appears the top 20% of Americans, income-wise, have more money to spend on goods and services than the bottom 80% can provide.

    The top 20% usually say the solution is to import lots of cheap labor. The plantation owners of the pre-civil war South had a similar solution.

    Another solution is to let supply and demand work within the national economy. Wages will eventually adjust upward, and the upper 20% will have modestly less results for their spending, while the lower 80% will have modestly higher real incomes.

    This result strikes me as salubrious in many ways. Higher real wages might even be good for the social fabric, although that appears shredded beyond repair at this point.

  2. Gravatar of David S David S
    7. January 2023 at 01:31

    My worthless forecast for 2023 is about the same as Scott’s. I think that unemployment will bounce around between 3.7% and 4.5%–with every minor gyration causing temporary bouts of manufactured crisis in the media and asset markets. A debt ceiling crisis orchestrated by Kevin McCarthy sometime in the fall could make things interesting. More relevant is Fed actions through the next 4 quarters. A soft landing would be ending the year with NGDP around 5%. I’ll be wrong about that as well.

    I’m trying to decide which term I like better: “mini-recession” or “slowcession” (HT to Mark Zandi).

  3. Gravatar of Tacticus Tacticus
    7. January 2023 at 05:43

    I’m projecting (ie guessing) 5-6% NGDP growth in 2023 and unemployment of 3.5-4.5%.

    January 26 advance release of 2022 numbers! Adjusted my Hypermind down slightly from 8.45% to 8.25%, but brought my tails in.

  4. Gravatar of kangaroo kangaroo
    7. January 2023 at 08:04

    Higher interest rates should encourage companies to reallocate their resources to more productive uses, shouldn’t it? IMO the tech industry has been piling on the “talent” for negative productivity uses (remind me again how Win 11 is better than Win 10? Or how the big recent website “upgrade” at my brokerage did anything for anyone?) for nearly a generation, so it’s hardly a surprise to see them making large layoffs quickly and following up with more. It wouldn’t surprise me at all if the basic blue print for this was drawn a while ago.

    I was chatting with a dude who’s company contracts with MSFT recently and he claimed the “cloud transition” will continue to drive tech profits. That may be so, but for tech companies and their customers alike, the cloud is a way to do more work with fewer people – i.e., increase productivity.

    It’s not hard for me to imagine that even if tech outputs (sales) decline, it’s inputs (labor) will decline more. Doesn’t that raise unemployment and productivity at the same time?

  5. Gravatar of Michael Rulle Michael Rulle
    7. January 2023 at 08:22

    Well, if Scott is confused, maybe I should not feel that bad that I am always confused.

    My reason the market was not up higher is in part heuristic and part Powell. The heuristic part is the market’s (S&P)highest daily return in any given year since 1950 was higher than 2.28% (1/06/23) 45 times in 73 years. So 2.28 is pretty high. And the range yesterday was about 3.25%——(from about 9.45-3.45) ——which is very high. That was surprising to me. Cherry picking——but first 15 minutes versus last 15 minutes “cost” almost 1%. Just an observation.

    Also Powell emphasized 3 weeks ago that 2% was still his target (he is a funny guy) inflation number. When the Fed speaks, I always hear “tighten” ——I would rather they never speak—-or just say it “depends on conditions”.

  6. Gravatar of ssumner ssumner
    7. January 2023 at 08:43

    kangaroo, You asked:

    “Higher interest rates should encourage companies to reallocate their resources to more productive uses, shouldn’t it?”


    And tech production is too small a share of the economy to have much impact on productivity.

  7. Gravatar of Andrew C Andrew C
    7. January 2023 at 15:24

    If all those economists are thinking that inflation will decrease over the same time period (22Q4-23Q4) couldn’t that lead to a situation where RGDP grows at 1% but inflation grows at 3% and the drop in NGDP compared to 21Q4-22Q4 creates a recession?

  8. Gravatar of ssumner ssumner
    7. January 2023 at 18:10

    Andrew, But then why would RGDP rise?

  9. Gravatar of Kangaroo Kangaroo
    7. January 2023 at 21:50

    Scott said “no”. ??? That’s what tech companies are already doing.

  10. Gravatar of Edward Edward
    8. January 2023 at 00:37

    Well, you are confused a lot, so your confusion doesn’t surprise me.

    The jobs report is meaningless, because the numbers don’t reflect those who have left the work force entirely, those on the dole, etc, etc. Other factors don’t support a healthy econonmy, like the lask of of savings (both personal and business), the real estate market, and the massive inflation tax.

    Not to mention, the dollar continues to weaken, the purchasing power of American’s continues to decline, the real income continues to fall, and debt increas.

    And why is that the case?

    Simple. Because your generation wants to live on a credit card, where they can die in a false sense of luxury while future generations are forced to deal with the debt burden. In other words, you’re a selfish prick. But so was your idol Bentham. So once again, I’m not surprised.

    Through the efforts of Gaetz and others, the non establishment figures FINALLY were able to get some concessions: one of them is actually having time to read a damn bill. Who would have thought reading is important? I guess not the kings and queens in Washington. Notice how the kings and queens in Washington called him a terrorist for not voting for them. Does that ring a bell? If you are an outsider like Trump you’re a terrorist. If you protest you are a terrorist.

    But yes, let’s keep voting for Romney or godforbid Sumner’s favorite: Bolton. Because more establishment figureheads with multi billions dollar companies and elitist GLOBAL connections is precisely what the country needs. We need elitists to push through 4000 page, two trillion expense, omnibus bills without permitting anyone the opportunity to read it; we need more establishment figures to continue to outsource jobs to the lowest bidder under the pretext that you’ll get lower prices, which of course you don’t because prices are subjectively determined by a number of factors, and because of barriers to entry which make it difficult to compete with the oligolpoly Sumner has created, because nobody can setup shops, night markets, or import without million dollar permits, etc.

    But don’t vote for the one guy who talks about this stuff. Don’t vote for Trump. He’s a little unsavoury and rough around the edges, and he’s also boastful and braggadocious, and Sumner’s elites can’t handle that unsavory, wild-west, politically incorrect mouth of his that delivers the occassional blunder from time to time. You must be perfect. You must be PC at all time or your unworthy. You must abide by Sumner’s vision, which means one world government (one world NATO) and the destruction of family and christianity or else you’ll be thrown in the gulags.

    Don’t mention Biden’s corruption. Don’t mention Pelosi or McConnell. Just shutup and listen to the elites. Don’t disagree or your a terrorist.

  11. Gravatar of Spencer Spencer
    8. January 2023 at 07:48

    The consumer is now tapped out. And we have stagflation, business stagnation accompanied by inflation.

    The level of interest rates is not going to follow the Fisher effect (“tendency for nominal interest rates to change to follow the inflation rate”). We will have higher structural levels of interest rates due to outsized government deficits and debts without QE. QE has its limits under the payment of interest on interbank demand deposits.

    Interest on interbank demand deposits (when it is higher than money market rates which is illegal per the per the FRSSA of 2006), induces nonbank disintermediation, an outflow of funds or negative cash flow.

    The U.S. $ will fall in foreign exchange markets.

    After the peak in the 2nd Elliott wave, the 3rd wave will take effect.

  12. Gravatar of Ricardo Ricardo
    8. January 2023 at 18:49

    Medical Data from new south Wales shows infectation rates among the vaccinated are significantly higher than the unvaccinated, particularly those with their third and fourth booster as shown in the chart here: In fact, there is a correlation between number of infections and number of vaccine shots.


    I thought I’d shared the data with you, before Sumner kills more people with his passionate pontifications over untested vaccines, or states that skeptics should be dismissed as “antiscience”, that Malone should be brought to the gallows for his heresy against the mainstream, and presumably strapped down onto a table and forced injected by the so-called elites.

  13. Gravatar of Tacticus Tacticus
    9. January 2023 at 03:23

    Ricardo, have you considered that people with more vaccines are more likely to take risks because they feel safer? Eg, I have had 4 vaccine shots, so I have no problem going to the theatre this evening. It is certainly possible that I shall catch Covid (again), but it is unlikely that it will kill me. Correlation =/= causation, come on – use your brain, if that isn’t too much to ask.

  14. Gravatar of sean sean
    10. January 2023 at 11:20

    Thought about this too. Yes agree these projections don’t fit together that well. I would expect productivity growth to increase some as supply chains have healed and especially energy has an outsized impact on rgdp calculations….but 1% rgdp does feel like it wouldn’t correlate with such a large increase in unemployment.

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