Opinion: Don’t be fooled, a recession really is coming

Editor’s Note: Lakshman Achuthan and Anirvan Banerji are co-founders of the Economic Cycle Research Institute (ECRI), which determines recession dates for 22 economies around the world. The views expressed in this commentary are their own. View more opinion on CNN.

CNN
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Recession concerns in the US are widespread these days. Yet, some economists argue that the strength of the labor market — as well as household balance sheets — will keep the economy strong enough to avoid a recession.

We disagree. Despite the relatively robust job growth we’ve been seeing, the Economic Cycle Research Institute (ECRI), which we co-founded, has been predicting recession since last spring, and it remains our expectation that the US economy will enter a recession this year.

Having gotten off to a late start, the Federal Reserve has been hiking interest rates since March of last year, and very sharply since June, to try to slow down the economy and cool inflation. The problem is that, by the time the Fed began hiking rates, the economy was already slowing, making recession more likely.

The goods sector is especially vulnerable, in part because it’s sensitive to higher interest rates. Symptoms of that vulnerability are already visible in falling factory orders. And, already under assault from rising mortgage rates, residential construction spending has been falling since last spring, and housing starts and new building permits have been tumbling.

Meanwhile, the purchasing managers’ index for manufacturing, which measures the month-over-month change in manufacturing activity, fell below 50 in the last two months, implying that a manufacturing contraction is underway. Moreover, its service sector equivalent has also slipped under the 50 mark, suggesting that services activity has started to decline.

Recessions always entail noticeable declines in both GDP and jobs, but such pullbacks are not necessarily obvious at the recession’s outset. While GDP and jobs do move in step with the economy, by the time they are released, they only tell us where the economy had been in the recent past.

Employment, in particular, can hold up longer than expected in a recessionary scenario. That was true in the…