Why a 2022 Recession Would Be Unlike Any Other | WSJ
Is the U.S. in a recession? Many economists think that’s a possibility and by some measurements, it may have already started. But why aren’t people losing their jobs? Recessions usually come with a dip in economic output and a rise in unemployment. Right now, economic output is falling. But so is unemployment. WSJ’s Jon Hilsenrath has coined it a “jobful downturn.” We look at past recessions and indicators to explain how a recession in 2020 could be very different.
If you look at every U.S. recession,
well, since World War II,
you’ll see two things always happen.
The GDP, the measure of economic output goes down
and unemployment goes up.
– For most Americans, when do you feel a recession?
It’s when you start worrying about your job.
– [Narrator] Now let’s look at today.
The GDP is going down, even the head of the federal reserve
says a recession is-
– Certainly a possibility.
– [Narrator] But the unemployment rate,
it’s actually falling.
More people are getting jobs, not losing them.
– We don’t know if it’s a recession.
What we can say is that if it is one,
it’s not like anything we’ve ever seen before.
– [Narrator] Here’s why.
The reason the GDP and unemployment are always together
is because they feed on each other.
When businesses layoff workers, people spend less money
which means businesses make fewer profits
and lay off workers.
A recession can begin at any of these points.
And in 2022, people could cut back on spending.
Just look at consumer sentiment, a measure that weighs
how people are feeling about the economy
and whether they plan to spend money soon.
Generally, when people respond that they feel
more pessimistic, a recession follows.
And right now they’re feeling about as good
as during the great recession in 2008, thanks to inflation,
not a great sign for the GDP.
– If people are frustrated by high inflation,
if they think inflation is gonna stick around for a while,
they might pull back convince companies to cut back
and that leads to worse outcomes for the economy.
– [Narrator] But businesses are in a different place
than past recessions.
This chart shows the average corporate profit margin.
In the past profits were in these single digits
leading into several recessions including 2001.
– That was a business driven recession where companies
over-invested, they decided they had to cut back
in order to rebuild our profit margins
and that led us right into a recession.
– The bubble has now burst.
I would not argue yet that we’ve seen the bottom in NASDAQ
or in our tech index.
– So are we back in one of those cycles?
In some ways it doesn’t look like that
because profit margins are so high right now.
– [Narrator] Not only are corporate profits in double digits
but the amount of cash they have is close to $4 trillion.
Analysts say that’s a significant downturn buffer.
– They might just decide they can weather this storm
and not lay off workers and not cut back on investment
and kind of get us to the other end of this adjustment
without a big retrenchment that feeds on itself.
– [Narrator] And companies have an incentive to not lose
any workers because many are having problems finding workers
in the first place.
It’s a really unique time in the job market.
The labor force participation rate
is as low as it’s been in 40 years.
And it isn’t all due to the pandemic,
the rate has been declining for a long time.
You can see it in the unfilled job rates too.
As more people leave the labor force,
the more job positions become available.
Add in a pandemic and that’s a lot of jobs.
– 11 million jobs are out there that they just can’t find
people to fill.
Now to put that in perspective, if you look back at say 2019
when the economy was considered to be exceptionally strong,
unfilled job openings were seven million.
So like here we are talking about a downturn in the economy
and we have four million more jobs open
than we had even at the height of the last expansion.
So you have to ask yourself a question, why is that?
Why is that happening?
One answer is that there’s generational change happening
in the economy.
We have millions of baby boomers who are retiring.
So there’s just not as many workers out there.
It’s also been the case that there’s just been really strong
demand for goods and services
in part because of all this stimulus that was pumped
into the economy during the pandemic.
And so that combination of labor shortages and strong demand
created this really robust job market.
– [Narrator] And it’s this robust job market
that can make a 2022 recession if one develops so different.
After past recessions, there was what was called
jobless recoveries where GDP began to grow back
but companies continued to lay off workers.
– [Jon] Right now we’re seeing a mirror image of that
where the economic output is contracting
and companies are still hiring.
It’s what I’m calling a job full downturn.
– [Narrator] But how long could an economic downturn
really be job full?
– This is unsustainable, right?
To have economic output contracting
at a time when companies are hiring.
So one of two things has to happen.
Either the economy adjusts
and companies start expanding again.
Or the economy keeps contracting,
economic output keeps contracting and companies say,
whoa, we’re over our skis and we’ve gotta cut jobs.
One of those two things is gonna happen.
We just don’t know which of the two.
– [Narrator] No recession has ever looked
exactly like another and if there’s a recession in 2022,
it won’t look like anything we’ve seen before either.