This funny recession in the United States that pleases the stock market

This Thursday, the Paris Stock Exchange will be the day of the release of the second quarter United States GDP bedroom 40 up 1.3% to close at 6,339.21 points, despite the poor performance of heavyweights like Airbus and TotalEnergies, which are among a plethora of companies to release their second-quarter financial statements between last night and this morning ahead of the open to have.

The Paris Index, after a hesitant morning to say the least, found that – contrary to all apparent logic – it had perked up again after the 2:30pm announcement of a “surprise” fall in American GDP in the months from April to June (- 0.9% qoq in annualized data) where the consensus was for a 0.4% rise. In truth, the surprise is not that big. While the Bloomberg consensus economists were still forecasting growth, the Atlanta Fed’s GDPNow model, one of the regional branches of the US central bank, pointed to a decline in GDP.

Like others, economist Bruno Cavalier of private bank Oddo BHF saw this decline coming. Earlier in the week he remembered it “Real GDP had already fallen in the first quarter. By the standard but questionable definition, the United States would have been in recession for the first half of the year… Strange recession where employment, revenue and spending continued to rise. The slowdown in the US economy is undeniable, but as of June it was not severe enough to turn around jobs and, unfortunately, not bring inflation down either. »

A contraction without a recession, that’s what the stock market likes, especially after the monetary policy decision of the Fed and the statements of its president. After announcing a further 75 basis point hike in US interest rates, the US Federal Reserve indicated last night via Jerome Powell that the bulk of the monetary tightening was over. “Jay” Powell said that” At some point it will be appropriate to slow down “. Policy rates are now in a range of 2.25-2.5% and in his statements the chief banker of the United States made it clear that the latest Fed forecasts – those from June, which indicated that the Interest rates should be between 3% and 3.5% by the end of the year – remained the best guide for US monetary policy, although the Fed, which is closely monitoring inflation, is not clear on what it will come up with at the next meeting in September Until then, two new reports on the development of the price index will be published, one for July and one for August.

Meanwhile, some of the comments that have pissed investors off include the one that featured in many reactions this morning that the Fed is starting to see signs of a slowdown in the US economy, which is exactly what they are achieving by raising rates wanted to calm inflation while avoiding, as far as possible, plunging the economy into recession, knowing that the central bank’s mandate is price stability and not economic growth. The stock market is beginning to believe that if the Fed doesn’t go too far in raising interest rates, the recession – the real one, the job-killing one – can finally be avoided.

Unheard of in over 70 years

To date, every time US GDP has contracted for two straight quarters since 1948 has essentially signaled a recession, as is commonly understood. But this time, although wealth created in the first economy fell 0.9% in the second quarter in annualized data, after -1.6% in the first three months of the year, the National Bureau of Economic Research (NBER) will do not officially declare the entry into recession.

“The annualized decline is disappointing but doesn’t mean the economy is in recession. The drop is partly due to a huge drag from inventories, while most other consistent indicators, including employment, show continued expansiondeciphered economist Andrew Hunter of Capital Economics. However, the details show that higher interest rates and runaway inflation are weighing on underlying demand and we expect only a modest recovery in GDP in the second half of the year. »

“The NBER would be a laughingstock if they claimed that if we added 400,000 jobs a month, we were in a recession.”scoffed Dean Baker, co-founder of the Center for Economic and Policy Research, on CNBC earlier this week. “I can’t even imagine that they would think for a second that we are in a recession. »

For the first six months of the year, the United States added an average of 457,000 nonfarm payrolls per month, a dynamic that is difficult to associate with an economic downturn. Add to that 11.3 million vacancies for just 5.9 million available workers.