The combination of a record plunge in labor productivity and rising inflation in the first half of 2022 may have given way to a new economic phenomenon, says UCF economist Sean Snaith: A “job-full” recession.
Although many economists, and certainly politicians, loathed to use the word “recession” last year, Snaith compares it to the “jobless recoveries” of the early 1990s and 2000s in his latest quarterly U.S. forecast released this morning.
And another recession may be coming, says Snaith, director of UCF’s Institute for Economic Forecasting.
But unlike past recessions, the labor market has kept growing in the face of other economic losses — something that’s unprecedented, Snaith says.
“In the 2008 housing crash and COVID-19 recession, the labor market was cut to the bone,” he says. “There’s still a lot of fat in this labor market even with the current slowdowns.”
Snaith points to other indicators of a pending recession. The Federal Reserve’s aggressive interest rate hikes and fears surrounding recent banking collapses are adding pressure, he says, which has been building as inflation has eroded consumers’ purchasing power.
A Second Serving of a ‘Pasta Bowl Recession’
Last year, Snaith coined another term, the “Pasta Bowl Recession,” to describe what he saw as a shallow slide into—and eventually a gradual climb out of — a recession.
It seems the U.S. may be in for a small second helping this year.
“I don’t think this will turn into an economic version of Olive Garden’s never-ending pasta bowl, but many indicators suggest that we are on the brink of or currently in another relatively short and shallow recession,” Snaith says.
And eventually, slowdowns in the U.S. labor market will become more apparent.
“While the labor market showed little signs of the 2022 recession, the second Pasta Bowl Recession will not be as innocuous,” he saiys. “We’ll see unemployment rising as 2023 progresses, all the way through 2025. Job growth will turn negative but not as sharply as was the case in the wake of the 2008-09 and 2020 recessions.”
One silver lining Snaith forecasts is a slow decline in consumer price inflation through the end of the year. By the end of 2024, inflation will be close to the Federal Reserve’s 2% target thanks to interest rate hikes and the second Pasta Bowl Recession.
Some additional highlights from Snaith’s latest four-year U.S. forecast include:
- U.S. consumers provided the muscle that powered the 2020 recovery. Following the end of most lockdowns, consumers were ready to spend. Since then, high energy prices, food costs and housing costs have steadily eroded their purchasing power. While credit card debt has temporarily patched the hole in their monthly budgets, this loss has set the table for the next serving of the “Pasta Bowl Recession.”
- Real GDP growth was -2.8% in 2020 but accelerated to 5.9% in 2021. It eased to 2.1% in 2022 and will further slow to 0.4% in 2023 before slowly rising to 0.8% in 2024 and then to 1.3% in 2025 and 1.8% in 2026.
- The housing market remains tight. High prices plus rising mortgage rates have eroded demand. However, still-low inventories will underpin the sector. Housing starts will decline from 1.6 million in 2022 to 1.1 million in 2023 and 2024 before rising to nearly 1.3 million in 2026.