🦉 Recession or Soft-landing?

Are we really on the brink of a recession, or is it just another media scare?

Let’s dig into the data and find out what’s really going on.

The Constant Worry

On a weekly basis there is no lack of articles, posts, and data stating that a recession is imminent or that we are already in one!

With a deluge of varied data points backing up the view:

And there are about a million other posts I could put up here.

Which if we assume are correct we would all be 100% convinced that we are already in a recession.

Now, the problem with this conversation is that economic forecasting is generally terrible.

Professional economists often declare recessions only after they've begun, sometimes even after they've ended.

Not very helpful right.

This raises an important question: If experts find it challenging to forecast accurately, how much attention should we pay to media predictions?

Predictions

For the last two years, calls for a recession have been non-stop.

I am going to piggy-back off Ben Carlson’s article over at a Wealth of Common Sense to summarize some of the “great” economic predictions we had during last two years:

Of course all those predictions were WRONG.

And in 2024, just like in 2022 and 2023, the recession calls have continued:

So, 35% or maybe 40% chance?

What do these percentages mean?

I can assure with 100% confidence that we will have a recession in the future. Maybe in 6 months or 2 years or 5, who knows.

It’s just that nobody knows know when with any certainty.

Almost all of those forecasts or predictions that you read are noise.

And it’s the reason why the wise ones don’t pay attention to them.

The Other Side Of The Story

AI am going to go through an example of why it’s so hard to get a full picture of what’s happening to the economy. Especially just from reading the news, who let’s be honest, are specialists on emphasizing bad news.

Let’s take one of the most cited variables: Household Debt

You look at the news above and the chart below and it is undeniable that people’s interest payments have gone up. And a lot!

The problem with that analysis is only looking at one side of the equation.

Yes, people are more indebted than ever on an absolute basis.

Yet. Households are also wealthier than ever.

Their homes are worth more, their investment portfolios have risen with a rising stock market…

So household debt / net worth is actually the lowest its been going back for decades.

At the same time incomes have risen as well.

Household debt service measured against disposable income (income after tax) its actually low.

The Good and the Bad

The truth is that right now there is data and narrative out there that could easily convince you that a recession is coming soon as well as that it isn’t.

On the bad side, the labor market is weakening. Unemployment has been creeping up.

On the flip side companies earnings growth has been solid. Across practically all sectors.

Companies are not mentioning recession risk prominently.

Important consumer company’s results are not signaling they see an imminent consumer slowdown that would imply a recession.

And lastly, major indexes of stock market are pushing basically at all-time highs.

Young Investor Takeaways

Predicting is Worse Than Hard - It’s pointless

Imagine someone telling you in January 2020 that a global pandemic would hit in March, grinding the world economy to a halt.

You might have rushed to sell all your investments, maybe even gone short the market.

Seems logical, right?

But who could have foreseen that by August, markets would be back to all-time highs. A raging bull market fueled by massive fiscal and monetary stimulus?

Here's the thing: Even if you correctly predict an economic event, profiting from it requires understanding second and third-order consequences.

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