Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: With on again, off again tariffs, renewed inflation concerns, and
Speaker 2: turbulence in financial markets, there's a question on everyone's mind.
Speaker 2: Are we headed for a recession? As early as last week,
Speaker 2: Goldman Sachs was saying it was more likely than not.
Speaker 2: So is JP Morgan Chase CEO Jamie Diamond, who went
Speaker 2: on Fox Business after the first round of President Trump's
Speaker 2: reciprocal tariffs on China went into effect.
Speaker 3: Do you personally expect a recession?
Speaker 1: I am going to defer to my economousness point, but
Speaker 1: I think probably that's a likely outcome.
Speaker 2: But then Trump paused some of his tariffs, and Goldman
Speaker 2: Sachs rescinded its recession forecast. On Wednesday, Federal Reserve Chair
Speaker 2: Jerome Powell shared the Fed's economic outlook.
Speaker 1: Despite heightened uncertainty and downside risks, the US economy is
Speaker 1: still in a solid position. The labor market is at
Speaker 1: or near maximum employment, Inflation has come down a great deal,
Speaker 1: but is still running a bit above our two percent objective.
Speaker 2: Powell also shared that early data suggests that GDP growth
Speaker 2: has slowed but not reversed. Still, consumer sentiment is it
Speaker 2: nearly record lows? And all over social media everything seems
Speaker 2: to be a recession indicator, subtle signs people notice in
Speaker 2: their daily lives suggesting we could be on the brink
Speaker 2: of a downturn.
Speaker 1: You want to know the craziest recession indicator I saw
Speaker 1: today a bagel shop was advertising free water phase.
Speaker 2: Sixty percent of general admission ticket buyers at Coachella used
Speaker 2: buy now, pay later to finance their tickets, And ladies
Speaker 2: and gentlemen, some of these are more serious than others.
Speaker 1: Here are my recession indicators. Katie Perry going to space.
Speaker 1: Flash mobs are back.
Speaker 3: I saw one in Grand Central the other day and
Speaker 3: I said, that's a bad sign for the times.
Speaker 2: The general takeaway is the vibes are off, so are
Speaker 2: we headed for recession? How will we know if we
Speaker 2: get there? And how much does that label really matter?
Speaker 2: I'm David Gera and this is the big take from
Speaker 2: Bloomberg News Today. On the show, John Authurs, Bloomberg Senior
Speaker 2: Markets editor and a columnist for Bloomberg Opinion, will help
Speaker 2: us parse the official and unofficial recession indicators and understand
Speaker 2: what lies ahead. John, a basic question to start right
Speaker 2: out at econ one oh one. What is a recession?
Speaker 2: Define it for me.
Speaker 3: It's a more complicated question than you think. A recession
Speaker 3: is when not only does growth slow down, but the
Speaker 3: size of the economy actually contracts, which doesn't happen that often.
Speaker 3: The most common way to measure that is through gross
Speaker 3: domestic product. The most obvious symptom of it is unemployment.
Speaker 3: The standard shorthands definition is two successive quarters of negative
Speaker 3: GDP growth, But that's a shorthand definition. Ultimately, it's the
Speaker 3: pot of Stuart's definition of pornography. I know it when
Speaker 3: I see it. That's a Supreme Court quotation I've just
Speaker 3: given you there. But generally speaking, if you have to
Speaker 3: question whether you're in a recession, you probably aren't. And
Speaker 3: if you are, you know all about it.
Speaker 2: Who effectively knows it when they see it? I gather
Speaker 2: the National Bureau of Economic Research plays an outsize role
Speaker 2: here in determining whether or not we are, in fact
Speaker 2: in a recession.
Speaker 3: Yes, so the default definition of a recession in the
Speaker 3: US is when the NBER says, so, you know, big
Speaker 3: group of very good academic economists and the lots of
Speaker 3: government backing behind them, and they take many things into account. Obviously, unemployment,
Speaker 3: gross domestic product mattering more than anything else. The big
Speaker 3: problem with the NBR approach for the purposes of history,
Speaker 3: for the purposes of analyzing data looking back to see
Speaker 3: what happens during recessions, it's brilliant. In real time, it's
Speaker 3: close to useless, because it's of the nature of a
Speaker 3: recession that it needs to go on for a while,
Speaker 3: a matter of months before you're sure it's a recession.
Speaker 3: If you wait until the NBER announces that we are
Speaker 3: indeed in a recession, it's almost certainly too late if
Speaker 3: you're a business making a decision, or particularly if you're
Speaker 3: an investor choosing about the stock market. So my favorite
Speaker 3: example is two thousand and eight, year of the global
Speaker 3: financial crisis. The NBR didn't make that announcement until the
Speaker 3: first of December, by which point Lehman Brothers had gone bankrupt.
Speaker 3: The stock market had dropped almost fifty percent. At that point.
Speaker 3: From the point of view of decisions in the here
Speaker 3: and now, the NBER is not helpful for looking back.
Speaker 3: For doing analysis, it's the gold standard.
Speaker 2: I think there are other groups who move faster and
Speaker 2: here I'm thinking about economists at the big financial firms.
Speaker 2: Who's saying that we are headed for a recession right now,
Speaker 2: at this moment in time in twenty twenty.
Speaker 3: Five naming names is very few people are saying there's
Speaker 3: one hundred percent chance of a recession, which is interesting
Speaker 3: because two years ago quite a few people were saying
Speaker 3: that and it didn't happen. More or less, everybody on
Speaker 3: the street has formally raised their probability of a recession
Speaker 3: in the wake of particularly the Liberation Day tariffs. But
Speaker 3: just the sheer uncertainty that the tariff environment causes makes
Speaker 3: it that much more likely that the economy will slow down.
Speaker 3: The thing that's fascinating here is the soft data versus
Speaker 3: the hard data. This is the sentiment data. Yeah, sentiment data,
Speaker 3: but some of it's pretty practical sentiments. So the ism
Speaker 3: supply Manager's survey is asking you, are your prices you're
Speaker 3: having to pay going up or going down? Are you
Speaker 3: building your own inventory or reducing it, etc. So it's
Speaker 3: a survey and it includes some sentiment, but it's not
Speaker 3: purely sentimental. Now, the soft data suggests we're already in
Speaker 3: a the way that confidence of small businesses, the confidence
Speaker 3: of consumers has dropped in the last few months has
Speaker 3: never happened before unless we've subsequently been in a recession.
Speaker 3: That said, the hard data that the last unemployment numbers
Speaker 3: were fine and inflation is coming down nicely. The hard
Speaker 3: data is still basically the technical terms might possibly be
Speaker 3: mid cycle slow down, but basically no particular reason from
Speaker 3: the most important data to think that we are already
Speaker 3: in a recession. This is primarily about the amazing goings
Speaker 3: on about trade policy, which we all know about by
Speaker 3: this point, and the way people are reacting to them,
Speaker 3: and how those reactions are changing their decisions in real time.
Speaker 2: I'm curious as you look at sort of what the
Speaker 2: banks are saying about the probability of a recession and
Speaker 2: what they're actually doing, how they're positioning themselves. Is there
Speaker 2: any sort of divide there.
Speaker 3: On the banks. I don't see that much in the
Speaker 3: way of true retrenchment already by the banks. I don't
Speaker 3: think somebody like Jamie Diamond is as sanguine as he
Speaker 3: was unless he means it. You don't talk down the
Speaker 3: economy if you're somebody like that, unless you really believe
Speaker 3: it's necessary and responsible to do so. Jamie DIMIs had
Speaker 3: an exciting and checkered career, but he doesn't you know,
Speaker 3: he doesn't do alarmism. So I'm most interested in the
Speaker 3: next couple of weeks when we hear from the companies
Speaker 3: that make things, and particularly obviously to think the companies
Speaker 3: that import and exports a lot of actual stuff rather
Speaker 3: than services, and that's when we'll really get an idea.
Speaker 3: But I do believe the banks when they say they're
Speaker 3: bracing for tougher times.
Speaker 2: Wall Street economists have updated their forecasts, and people who
Speaker 2: play the prediction markets like Polymarket, are weighing in what
Speaker 2: they expect and some of John's top recession indicators. After
Speaker 2: the break, I'm speaking with John Arthurs. He's a senior
Speaker 2: markets editor at Bloomberg and a columnist for Bloomberg Opinion.
Speaker 2: You wrote about this in your column that the betting
Speaker 2: markets and what those betting on the markets are telling
Speaker 2: you about their sense of the likelihood of a recession.
Speaker 2: What are you seeing when you look at polymarket and.
Speaker 3: The like Polymarket, which during the election, you remember, was
Speaker 3: accused not totally fairly of being somewhat right wing or
Speaker 3: pro Trump biased, saw a chance of a recession of
Speaker 3: somewhat under twenty percent at the beginning of the year,
Speaker 3: which was a little on the bearish side. It got
Speaker 3: over sixty percent before Trump pulled back on the main
Speaker 3: reciprocal tariffs the ninety day pause. It's still at this
Speaker 3: point over fifty percent that we have a recession by
Speaker 3: the end of this year, which needs to be triggered
Speaker 3: by the NBER saying so, or by two quarters of
Speaker 3: GDP being negative, which means means that you shouldn't be
Speaker 3: making that bet. You shouldn't be thinking it's that probable
Speaker 3: unless you think the recession has probably already started. The
Speaker 3: people who play on polymarket do have real money at stake,
Speaker 3: and that means that you should take them quite seriously.
Speaker 3: The mere fact that people think that makes it more
Speaker 3: likely that you get a self fulfilling prophecy that people
Speaker 3: are just their behavior accordingly spend less and you get
Speaker 3: a recession.
Speaker 2: John, we've been talking about the statistics, the data professional
Speaker 2: economists used to determine if there is a recession or
Speaker 2: there's likely to be one. Let's talk about some of
Speaker 2: the unofficial indicators that could give us a sense of
Speaker 2: where the economy is right now and where it's headed.
Speaker 2: Are there any that you look to maybe softer signs
Speaker 2: that the vibes are off in the economy.
Speaker 3: In terms of the numbers, I look at things that
Speaker 3: do bother me somewhat. FedEx's share price has been doing
Speaker 3: very badly. Significance of that is, obviously if there is
Speaker 3: a purer play on globalization and on level of economic
Speaker 3: activity than FedEx. I can't really think what it is.
Speaker 3: And the fact that its share price is going down
Speaker 3: isn't all top down globalization is in trouble. Better gets
Speaker 3: out of FedEx. It's people looking at their numbers and
Speaker 3: looking at what the company is saying and thinking they'd
Speaker 3: better get out. And by the way, that implies the
Speaker 3: economy is slowing down. That one does actually concern me
Speaker 3: quite a bit. Another measure that isn't fool proof, but
Speaker 3: again because so many real people are playing with real
Speaker 3: money in a way that can have self fulfilling consequences,
Speaker 3: is the metals market. The ratio of gold to copper,
Speaker 3: the amount of copper you could buy with an ounce
Speaker 3: of gold, has never been higher. Copper is basically something
Speaker 3: you buy when the economy is doing well, particularly when
Speaker 3: China is electrifying and building stuff, or when people are
Speaker 3: building lots of cars and houses. Gold is something you
Speaker 3: buy when you're worried, when you can't think of anything
Speaker 3: better to do with your money than put it in
Speaker 3: the shiny metal and it'll be safe. So I take
Speaker 3: that pretty seriously as an indicator that things aren't good.
Speaker 2: As you look at all of the data, hard and soft,
Speaker 2: where are you on this question of whether or not
Speaker 2: we are in a recession or headed for one?
Speaker 3: This is the agonizing part of it. It really does
Speaker 3: depend on trade. If tariffs on China stay at about
Speaker 3: one hundred and forty percent for any length of time,
Speaker 3: there has to be a recession. I don't see how
Speaker 3: there cannot be. The latest World Trade Organization estimates are that,
Speaker 3: assuming these level of tariffs, imports to the US from
Speaker 3: China are going to be down seventy percent. If you
Speaker 3: think how important those imports are, there's no way you
Speaker 3: can source that adequately from anybody else. In the very
Speaker 3: short term. It will mean shortages, it will mean factories
Speaker 3: having to go on pause. If we really stick with
Speaker 3: the tariffs that's currently laid out, there will be a recession.
Speaker 3: I would be astonished if there wasn't. My best guess
Speaker 3: as to where trade policy is going to go, is
Speaker 3: that it's going to do enough damage that we will
Speaker 3: fall into something the NBAR calls a recession by the
Speaker 3: end of this year.
Speaker 2: Here's a big think question. I'm curious how much naming
Speaker 2: a recession a recession matters. So, going back to what
Speaker 2: you said at the top, you know, when you see it,
Speaker 2: if people are feeling economic hardship, they know the reality
Speaker 2: of the economy today themselves. Does it matter if we're
Speaker 2: technically labeling something a recession or not.
Speaker 3: It probably does a little because this is a concept
Speaker 3: from George Soros, the hedge fund manager. He bases his
Speaker 3: whole investments approach around reflexivity, which is his idea that
Speaker 3: markets can create their own reality. So in terms of information,
Speaker 3: if you think prices are going to go up, you
Speaker 3: go out and buy stuff now and before you need it,
Speaker 3: So there is more buying going on now, which pushes
Speaker 3: up the prices, which creates the inflation. And similarly, if
Speaker 3: people are scared about bonds and they sell bonds and
Speaker 3: the rates go up, then that has an effect on
Speaker 3: the economy because the rates on the bond matter that
Speaker 3: much to the economy. So if you actually say there's
Speaker 3: a recession. It does matter. That said, I think the
Speaker 3: experience of the last ten twenty years, and particularly the
Speaker 3: experience of Biden, does suggest that it might not matter
Speaker 3: that much. The hard data is fairly clear that there
Speaker 3: wasn't an aggregate recession under Joe Biden. There were two
Speaker 3: successive quarters of very slight declines in GDP growth. I
Speaker 3: know very few people who really think that that was
Speaker 3: a true recession, people who do economics for living that said,
Speaker 3: you only need to see what happened in the election,
Speaker 3: You only need to take the slightest vibe just to
Speaker 3: keep your eyes open as you walk down the streets.
Speaker 3: Anywhere in this country, it felt like a recession for
Speaker 3: a huge proportion of people, and they acted accordingly.
Speaker 2: Do you think that George Soros would say that us
Speaker 2: having this conversation is an example of reflexivity that by
Speaker 2: us talking about the sort of zeitgeist feeling that there
Speaker 2: is a recession or could be a recession soon, is
Speaker 2: likely to feed into it.
Speaker 3: Yes, I mean, that's always the accusation made against any
Speaker 3: of us in the media, but there's some degree of
Speaker 3: truth to it. One of the standard things politicians say
Speaker 3: when oppositions say the economy is terrible, is you're talking
Speaker 3: down the economy. The economy would be fine if you
Speaker 3: wouldn't stop saying nasty things about it. There is a
Speaker 3: degree of truth to that. I don't think you or
Speaker 3: I having this conversation is really going to make people
Speaker 3: sell all their stock portfolios and lock up their factory.
Speaker 3: But George Soros would definitely say that the zeitsgeist, the
Speaker 3: broader sentiment, the more and more people talk about these
Speaker 3: things that, yes, that can create the perceptions of reality
Speaker 3: can change the actual reality.
Speaker 2: John, thank you very much, appreciate it.
Speaker 1: Thank you.
Speaker 2: This is the Big Take from Bloomberg News. I'm David Gera.
Speaker 2: This episode was produced by Julia Press. It was edited
Speaker 2: by Aaron Edwards, Tracy Sanielson, and Mollie Smith. It was
Speaker 2: fact checked by Adriana Tapia and mixed and sound designed
Speaker 2: by Alex Sagura. Our senior producer is Naomi Shaven. Our
Speaker 2: senior editor is Elizabeth Ponso. Our deputy executive producer is
Speaker 2: Julia Weaver. Our executive producer is Nicole Beemster. Bor Sage
Speaker 2: Bauman is Bloomberg's head of podcast. If you liked this episode,
Speaker 2: make sure to subscribe and review The Big Take. Wherever
Speaker 2: you listen to podcasts, it helps people find the show.
Speaker 2: Thanks for listening. We'll be back next week.