Mark Zandi on changing odds of recession
What recession? The consensus view that recession was virtually a slam dunk looks increasingly off base. Yes, there will eventually be one, but odds that a downturn is dead ahead are receding. There are a bunch of reasons why the economy is hanging tough. Here are my top three…
First, excess savings. Consumers couldn’t spend as they typically do during the pandemic as they were stuck at home. At the peak, excess savings amounted to 10% of GDP. Consumers have since been using the savings to supplement their purchasing power and calibrate their spending.
Second, labor hoarding. Businesses desperately want to avoid layoffs. Even before the pandemic they had big trouble finding and retaining talent. They also know that the labor shortages will be a perennial problem as the boomers are retiring and immigration is impaired.
Third, low leverage. Households and businesses have borrowed prudently, and their debt service burdens are historically light. They’ve also locked in the previously low rates. Some low income households and PE-acquired businesses have overdone it. But they are the exception.
I remain agnostic on these questions, but I would note that “conditional on inflation coming down from five percent” would be a useful qualifier for some of this discussion…