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Why a 2022 Recession Would Be Unlike Any Other | WSJ - YouTube
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- [Narrator] If you look
at every U.S. recession,
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well, since World War II,
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you'll see two things always happen.
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The GDP, the measure of
economic output goes down
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and unemployment goes up.
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- For most Americans, when
do you feel a recession?
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It's when you start
worrying about your job.
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- [Narrator] Now let's look at today.
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The GDP is going down, even
the head of the federal reserve
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says a recession is-
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- Certainly a possibility.
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- [Narrator] But the unemployment rate,
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it's actually falling.
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More people are getting
jobs, not losing them.
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- We don't know if it's a recession.
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What we can say is that if it is one,
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it's not like anything
we've ever seen before.
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- [Narrator] Here's why.
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The reason the GDP and
unemployment are always together
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is because they feed on each other.
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When businesses layoff workers,
people spend less money
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which means businesses make fewer profits
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and lay off workers.
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A recession can begin
at any of these points.
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And in 2022, people could
cut back on spending.
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Just look at consumer
sentiment, a measure that weighs
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how people are feeling about the economy
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and whether they plan to spend money soon.
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Generally, when people
respond that they feel
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more pessimistic, a recession follows.
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And right now they're
feeling about as good
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as during the great recession
in 2008, thanks to inflation,
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not a great sign for the GDP.
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- If people are frustrated
by high inflation,
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if they think inflation is
gonna stick around for a while,
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they might pull back convince
companies to cut back
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and that leads to worse
outcomes for the economy.
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- [Narrator] But businesses
are in a different place
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than past recessions.
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This chart shows the average
corporate profit margin.
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In the past profits were
in these single digits
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leading into several
recessions including 2001.
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- That was a business driven
recession where companies
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over-invested, they decided
they had to cut back
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in order to rebuild our profit margins
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and that led us right into a recession.
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- The bubble has now burst.
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I would not argue yet that
we've seen the bottom in NASDAQ
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or in our tech index.
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- So are we back in one of those cycles?
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In some ways it doesn't look like that
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because profit margins
are so high right now.
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- [Narrator] Not only are
corporate profits in double digits
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but the amount of cash they
have is close to $4 trillion.
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Analysts say that's a
significant downturn buffer.
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- They might just decide
they can weather this storm
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and not lay off workers and
not cut back on investment
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and kind of get us to the
other end of this adjustment
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without a big retrenchment
that feeds on itself.
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- [Narrator] And companies
have an incentive to not lose
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any workers because many are
having problems finding workers
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in the first place.
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It's a really unique
time in the job market.
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The labor force participation rate
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is as low as it's been in 40 years.
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And it isn't all due to the pandemic,
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the rate has been
declining for a long time.
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You can see it in the
unfilled job rates too.
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As more people leave the labor force,
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the more job positions become available.
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Add in a pandemic and
that's a lot of jobs.
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- 11 million jobs are out
there that they just can't find
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people to fill.
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Now to put that in perspective,
if you look back at say 2019
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when the economy was considered
to be exceptionally strong,
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unfilled job openings were seven million.
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So like here we are talking
about a downturn in the economy
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and we have four million more jobs open
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than we had even at the
height of the last expansion.
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So you have to ask yourself
a question, why is that?
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Why is that happening?
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One answer is that there's
generational change happening
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in the economy.
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We have millions of baby
boomers who are retiring.
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So there's just not as
many workers out there.
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It's also been the case that
there's just been really strong
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demand for goods and services
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in part because of all this
stimulus that was pumped
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into the economy during the pandemic.
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And so that combination of labor
shortages and strong demand
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created this really robust job market.
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- [Narrator] And it's
this robust job market
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that can make a 2022 recession
if one develops so different.
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After past recessions,
there was what was called
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jobless recoveries where
GDP began to grow back
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but companies continued
to lay off workers.
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- [Jon] Right now we're
seeing a mirror image of that
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where the economic output is contracting
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and companies are still hiring.
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It's what I'm calling a job full downturn.
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- [Narrator] But how long
could an economic downturn
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really be job full?
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- This is unsustainable, right?
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To have economic output contracting
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at a time when companies are hiring.
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So one of two things has to happen.
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Either the economy adjusts
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and companies start expanding again.
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Or the economy keeps contracting,
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economic output keeps
contracting and companies say,
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whoa, we're over our skis
and we've gotta cut jobs.
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One of those two things is gonna happen.
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We just don't know which of the two.
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- [Narrator] No recession has ever looked
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exactly like another and if
there's a recession in 2022,
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it won't look like anything
we've seen before either.
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(soft upbeat music)
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