Recession or Re-Set?

Recently the Wall Street Journal published an article observing that if the US economy is in a recession, “it’s a very strange one” (July 4, 2022). Every recession over the past 80 years has been characterized by two consistent factors: increased unemployment and a contraction of the economy. Yet despite a recent reduction in the size of the economy, employment continues to expand, nearing 97% nationally. In today’s US economy, virtually everyone who wants a job has one.

Against this backdrop, firms like our commercial real estate practice truly find ourselves busier than ever before, as all those businesses that moved to the sidelines during the pandemic have come charging back onto the field, aided by scores of new businesses including EV companies such as Lucid and Rivian, retail healthcare brands like Carbon Health and One Medical, and booming QSR brands whose sales have shattered previous highs. Add to these users the residential and mixed-use developers who are crowding the playing field by densifying suburban markets, cramming projects ever closer to dining, transit, shopping and services.

As I take a daily poll of peer brokerage firms and our investor/developer/owner clients, as well as the user-brands that we help to grow, they all chorus in unison about persistent demand for growth that is primarily constrained by supply chain delays. While the rising construction & fuel costs that have been accurately and well-chronicled are certainly having their impacts too, user demand stubbornly persists. Simultaneously, consumers have increasingly encountered the staffing shortages that have suddenly caused cafes, restaurants and other labor dependent businesses to reduce hours, and caused airlines to slash flights by the thousands, among other retail staffing impacts. Staffing shortages and near-full employment levels are not signals of an economy in recession.

No, I will not label the unevenness that the economy is experiencing as a recession. Rather I would posit that the twin phenomenon of swelling employment and a contraction in spending are simply the logical results of an economy in which multiple artificial props that have served their purposes have recently been removed. The foundering US economy of 2020-2021 was defined by two unprecedented interventions – the PPP loan/forgiveness program (free money), and near zero interest rates (almost free money). Additionally, the government’s direct stimulus payments (free money) and the extension of unemployment benefits (free money) further buoyed the economy. How couldn’t they?

As this unprecedented level of government largesse has recently wound down, what we now find is not a US economy in recession, but rather an economy that is right-sizing to a normal, healthy and non-artificially inflated size. It would be no more accurate to describe the present right-sizing of the economy as a “recession” than it would have been to describe the artificially curated pandemic recovery that preceded it as “organic” growth. Our capitalistic system absorbs positive and negative economic impacts alike, and is continuously righted by the self-correcting gyroscope of free markets.

Government interventions like PPP and generationally-low interest rates were never intended to be permanent. Only those who might have assumed the artificial economy of 2020-2021 to be a “new normal” could characterize the US economy’s 2022 right-sizing as a recession.