Broker Check
Was There Supposed to Be a Recession?

Was There Supposed to Be a Recession?

July 12, 2023

In advance of 2023, the recession drum beats were so loud it was deafening. Market pundits warned that as the Fed raised interest rates, it was just a matter of time before the economy entered a recession.

But it’s July now, and so far, no recession. It appears that the economy is slipping into an expansion rather than moving toward a recession.

The first quarter gross domestic product expanded at a 2% rate, and the job market appears in good shape. Meanwhile, the stock market, considered a lead indicator, rallied in the first half, catching some by surprise.

Those in the “just a matter of time before a recession” camp point to the yield curve. It remains inverted, with the interest rate on 2-year Treasury notes higher than on 10-year Treasury notes. Historically, an inverted yield curve has signaled a recession.

The accompanying chart shows that the current market rally has lasted roughly nine months, which is about the length of the market’s downtrend in 2022. While the Standard & Poor’s 500 remains well below the high, the downtrend and the uptrend are starting to look similar.

As the Fed continues its fight against inflation, one of the more challenging parts of the economy is gauging what's happening in the jobs market.  Two weeks ago, we discussed how the economy continues to “Power On” despite all the negative news in the major media.  The source of this momentum is…..consumers!  You and I spending for our family and daily needs is 66% of our entire commercial economy.  Everything discussed on major business networks like CNBC, Bloomberg, and Fox Business about corporate America is principally dependent on our spending. Therefore, it is important to monitor the sources of consumers’ income and more importantly their prospects of earning more or less.

The Bureau of Labor statistics last week reported the private sector added nearly 500,000 jobs, double the expectations. Meanwhile, job openings also fell by 500,000, also above expectations.  In other words, as people are being hired the pool of new job openings for new hires is shrinking. 

Unemployment rate dropped to 3.6% from 3.7% in June and remains at its lowest levels in 50 years. More people are employed with W-2 income than any other time in history of the US.

Meanwhile, the Federal Reserve is relentlessly trying to slow the pace of inflation which translates into slowing the US economy. The Feds main tool is raising interest rates that has stopped many industries in their tracks that include the new commercial construction, residential lending, and commercial credit markets.  However, the economy continues to grow with steady demand for goods and services.  In explaining why the Fed may boost interest rates again in 2023, Fed Chair Powell said, “What’s really driving it … is a very strong labor market.”

The accompanying chart shows why the Fed struggles to understand what’s happening with today’s jobs market.

As you can see, the number of self-employed people rose to an all-time high during COVID. But now it's falling at a rapid pace. What’s causing the drop? More people appear to be retiring from the self-employment gig (famously referenced by Hilary Clinton) and returning to work 9-5 jobs with W-2 income.  Remember that the Federal agencies only track W-2 payrolls for job activity and unemployment rate is based on the number of people collecting unemployment benefits and not necessarily how many people are not earning any income from employment. 

This also answers the question as to where all the new hires are coming from if the economy is already at full employment.  Self-employed individuals are not included in the Bureau of Labor Statistics and unemployment reports.


Our view is the US economy and stock market remain in favorable status.  The first half of 2023 was nothing many analysts predicted in 2022.  Most had forecast a slowing economy sliding into a recession and dire 2023 outlooks for the stock market.  The opposite was experienced with a strong recovery of the stock market and currently no indications of a recession.

The stock market may experience a flat or slightly declining trend during the summer that is typical after a strong first half year.  However, if consumer confidence and spending remain stable or improve through the summer then a fourth quarter recovery and perhaps even a year-end rally.  This scenario is particularly possible with projections of a strong holiday retail cycle that may build additional momentum into the start of 2024.

Let us know your thoughts on this Weekly Brief or if you have any questions about your financial planning.  The summer is an excellent opportunity to review how you did the first half of the year and prepare for the second half.  You want to be sure you are meeting your funding goals in your retirement accounts and review all your investments to evaluate if any changes may be required. We have provided this service to our clients for more than 30 years and welcome the opportunity to be of service to you and your family.