‘Rolling Recession’ and Why America May Be in One: Experts

Billion Photos/Shutterstock

America may be about to enter or could currently be in the midst of a “rolling recession” rather than a full-blown economic downturn or a soft landing, according to experts.

Nick Reece, vice president of macro research and investment strategy at Merk Investments and a member of the Portfolio Management Group, took to Twitter earlier in January where he stated that it is possible that the United States is already in a rolling recession.

His comment comes as U.S. employment is at its lowest level since 1969, and real GDP, which assesses base-year prices, increased 2.1 percent overall in 2022. However, inflation still remains high at 6.5 percent, leaving many households feeling stretched when it comes to paying for everyday essentials.

Many experts are now preparing for a full-scale recession, but others, like Reece, believe it may be mild.

A rolling recession, Reece explained on Twitter, is “where categories of macroeconomic activity (employment, production, income, spending) go through mild contractions, but with an asynchronous cadence that avoids the reinforcing depth, diffusion, and duration of a true recession.”

Simply put, a rolling recession occurs when the recession or economic downturn only affects certain sectors of the economy or various industries at a time as opposed to impacting all of them simultaneously.

While some sectors or even geographic areas experience downturns, the national economy may continue to grow, according to the Federal Reserve Bank of San Francisco.

Single-family home "For Sale." Andy Dean Photography/Shutterstock

Housing, Manufacturing Slowing Down

As an example, portions of the economy such as the housing industry—which saw new starts fall for a fourth straight month in December, to 1.38 million—along with manufacturing and the tech industry, which has initiated a series of layoffs in the past year, have shown signs of drastically slowing down.

Meanwhile, corporate earnings growth has declined and consumer spending has weakened as inflation has soared.

However, the National Bureau of Economic Research (NBER), the nonpartisan body that determines whether or not America is in a recession, has yet to declare one based on its own definition of a recession, which it says is a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

The standard definition of a recession is also based on two consecutive quarters of declining gross national product, as has been seen in the United States. Yet, still, many experts have stopped short of declaring that the country is currently in the midst of a recession.

That could, some experts, including Charles Schwab economists, point to the fact that the country is instead experiencing a rolling recession.

“As we posited in our 2023 outlook, a recession of the ‘rolling’ variety has been underway for some time,” economists from the financial services company said in January.

“The growth surge coming out of COVID lockdowns benefited the goods side of the economy, with an additive of rocket fuel courtesy of massive fiscal stimulus. That era—punctured by global supply constraints—became the breeding ground for the inflation problem with which we’re all still dealing. Since then, the goods side of both the economy and inflation statistics have decelerated sharply, giving way to the pent-up demand surge for services, which has boosted that side of inflation data,” they wrote.

People shop for bread at a supermarket in Monterey Park, Calif., on Oct. 19, 2022. Frederic J. Brown/AFP via Getty Images

‘Offsetting Pockets of Strength’

As such, Charles Schwab economists believe the current debate is not so much about a recession versus a soft landing but rather about whether or not the rolling recession can continue without eliciting a formal recession declaration from the NBER.

“In other words, we view the best-case scenario as one of an ongoing roll of weakness through the economy, with offsetting pockets of strength,” economists wrote.

Similarly, Sung Won Sohn, professor of finance and economics at Loyola Marymount University and chief economist at SS Economics, told CNBC that he agrees that the United States needs to brace for a rolling recession that is already in progress.

The professor also cut a more optimistic tune, adding that the worst of the volatile economy may already be over.

In an emailed statement to The Epoch Times, Reece elaborated further on the concept of a rolling recession, although he noted that the risk of an economic downturn continues to be elevated and “many classic warning signs remain on the checklist.”

“The China reopening, early signs of an upturn in Europe, U.S. fiscal stimulus, disinflation, and the tight labor market could all play a role in that outcome,” Reece said of a rolling recession.

“A Federal Reserve pause (which looks increasingly likely), combined with a soft(ish)-landing, would be a positive development for the market outlook,” Reece said, adding that there is “still no strong evidence of the U.S. economy being in a recession as of December 2022,” but that even if one were to be avoided this year, “an earnings contraction is still on the table.”