US Could Already Be in Recession, Investment Adviser Warns

U.S. $100 bills are seen in Marple Township, Pa., on July 14, 2022. Matt Slocum/AP Photo

In an interview with the Epoch Times, adviser for SitkaPacific Capital Management Mike “Mish” Shedlock warned that the possibility of a recession may have already arrived, as indicators show that the U.S. economy is “flirting with recession right now.” The warning comes days after Federal Reserve meeting minutes revealed that central bank officials anticipate a recession later this year.

“If we’re not in recession, we’re certainly close,” Shedlock said.

One of the key indicators he’s watching is the housing market, which he argued has signaled a pending recession for quite some time.

In February, existing home sales in the United States fell by over 22 percent compared to the prior year. Sales bottomed at the start of the year at 4 million, a significant decline from the pandemic peak of 6.7 million. During the woes of the 2008 financial crisis, home sale volume troughed to 3.8 million.

Despite the ominous data, Shedlock pointed out that the Federal Reserve has never predicted a recession in advance, and their recent prediction may be a first for the central bank. “Either this is the first time or, if you’re a contrarian, no recession is coming at all, and I certainly don’t believe that,” he said.

Unemployment May Appear Resilient

Shedlock’s views on unemployment during this potential recession may come as a surprise to some.

While many economists—including those at the Fed—anticipate a severe rise in the unemployment rate in the coming months, Shedlock holds a different perspective. Specifically, he points to the imperfect data used to calculate the metric and the coming Baby Boomer retirement tsunami.

The Federal Reserve is now predicting a recession in late 2023. Federal Reserve Chair Jerome Powell departs after facing reporters at a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington on June 15, 2022. Elizabeth Frantz/Reuters

“I think a lot of those openings are a mirage. They don’t really exist,” he said, suggesting some sectors have maintained active listings with no actual hiring plans due to the sluggish economy. “The leisure and hospitality sector never really recovered all the jobs from the last recession.”

Shedlock, also the author of the “Mish Talk” economics blog, believes the pending retirement crisis will play an even more significant role in suppressing the unemployment rate, as retirees are not counted in the data.

“There’s a whole wave of boomers that are going to be retiring within the next few years.”

A retirement-induced lowering of the unemployment rate may not be a positive development, as fewer workers combined with additional Social Security recipients could put upward pressure on prices.

Boomers are in the process of retiring, which will not be complete until 2030. Estimated Social Security benefits on average will be around $1,668 per month, which can increase to $2,068 if they delay retirement by a few years, according to the Transamerica Center. For the almost 70 million retirees receiving Social Security, that equates to a monthly cost to taxpayers of over $100 billion.

Shedlock highlighted that not only do Boomers outnumber their younger counterparts, but they’re generally more skilled.

“You have very skilled Boomers and Gen X-ers retiring, and they’re gonna be replaced by what?” he said. All of these factors will lead to inflation remaining higher for longer as fewer and less-skilled workers contribute to a lagging aggregate supply.

Shallow but Persistent

Striking a lighter tone and setting himself aside from the bearish crowd, Shedlock predicted the coming recession will be relatively mild but could persist for several years.

He drew a comparison to the COVID-19 recession, which was sudden and saw the sharpest rise in unemployment on record.

“I’m expecting the exact opposite of the COVID recession,” he explained. “It was extremely deep. The unemployment losses were historic.”

The COVID-19 recession was short-lived, lasting only two months and not even an entire quarter. In March 2020, lockdowns sparked a flash crash amid mass business closures. Central bankers then took unprecedented stimulative measures to arrest the fall in the bond market.

Shedlock’s recession prediction differs from 2020, both in duration and severity.

“We are going to have a relatively mild recession, but no real recovery from it.”