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Recession or Soft Landing?

Jul 29, 2023

In today’s episode, we’ll examine an opinion article that talks about the possibilities of a recession that was published in the New York Times on July 24th, 2023.  In this podcast, I will introduce some really useful vocabulary that will help you discuss the issue of recession in your own country.

The article was written by opinion columnist Peter Coy. It is titled:

A look at history shows that the burden of proof is on the optimists

(repeat)

Now when the  author, Peter Coy, says ‘the burden of proof is on the optimists’, he’s means that the economists who think the United States will avoid a recession – the optimists – need to prove this point, because he – the writer of the article – thinks the opposite. He is pessimistic and believes that the USA will fall into a recession.

So, there are two sides to the argument. The article first examines just why some economists are so optimistic, and why they think that the economy will avoid a recession and instead have a so-called ‘soft landing’, which means a period of slow growth, but without entering a recession. A ‘soft landing’.

The author says that he understands the case for optimism. After all, there are many reasons, to be optimistic about the US economy, and he mentions a few, such as, and I quote:  “Unemployment is still low. Inflation has come down… Consumer confidence has strengthened. And the stock market is up.”

Not only that, the optimists mention the following: “Consumers still have some unspent savings from the pandemic stimulus; businesses will be slow to lay off workers even if conditions worsen, because talent is hard to find; household and business debt loads are light; inflation expectations are low and well-anchored, so the Fed can relax; and oil prices have receded.” Remember that to ‘lay off’ means to temporarily or permanently terminate the employment of an employee.

So, there are lots of good reasons to be optimistic, right? Well, according to the author, wrong. He says instead that recession is “looming” and the country is “headed for recession”.

We have seen the word ‘looming’ in these podcasts before. ‘Looming’ is something that is an impending threat. If you say something is ‘looming’, like recession, you are saying that it is ‘right around the corner’. It’s close and it’s threatening. Looming.

Why does he think this? He states: “One persuasive data point is the steady decline in the Conference Board’s Leading Economic Index.”

The author mentions that according to economist David Rosenberg, the Leading Economic Index started to decline 13 months before a recession begins and falls 4.6 percent before the recession begins, and this has happened for every recession since December 1969. The author says that by that metric, the USA is now “deep into the danger zone”.   

By the way, for your general interest, you should know that the U.S. Leading Economic Index, or ‘L.E.I’, contains ten components in all, including leading indicators like these:

  • Average weekly hours in the manufacturing sector
  • Average weekly initial claims for unemployment insurance
  • Manufacturers’ new orders of consumer goods, and materials
  • Building permits of new private housing units
  • Average consumer expectations for business conditions
  • Interest rate spread, 10-year Treasury bonds less federal funds

So, leading indicators, or course, are indicators that suggest what will happen in the future.

The author gives special importance to the last metric I mention. The interest rate spread on 10-year treasury bonds. He draws attention to the fact that the short-term interest rates are now higher than the long-term interest rates, and that is a strong recession indicator.

Not only that, but he adds that the full force of the Fed’s recent rate increases are yet to hit the economy, because they act with a lag, and that rising interest rates have already hurting home sales volume and prices and have put pressure on smaller banks. So, that’s why he is pessimistic.

By the way, the Fed raised the reference rate another quarter point this week, which will put further pressure on growth. And by ‘pressure on growth’, I mean a force that works against growth. If you feel pressure, something is pushing on you.

So for all of these reasons, the author concludes that, and I quote: “I’m sticking with my recession forecast.” What does it mean to “stick by” something. It means to stand by. To maintain. So he is sticking with his forecast for recession. And he says that the “burden of proof” needed to change his mind, needs to be provided by the optimists.  

Very interesting article full of lots of great vocabulary. I will put the link in the show notes that you can find on the webpage englishforeconomists.com. While you are there, take a second and subscribe to our newsletter to get notified about upcoming courses and events, and to make sure you never miss one of the podcast lessons.

Speaking of lessons, be on the lookout for my upcoming video series called Economists in Action. This twelve-chapter video course is going to offer you an excellent way for you to review your understanding and pronunciation of key vocabulary that you’ll need to speak about the economy in English. We are in the finishing stages of production, so stay tuned.

Alright my friends, let’s review today’s key vocabulary one last time:

Burden of proof: the responsibility one party has to provide sufficient evidence or arguments to support their claims

Soft landing: when the economy cools, but avoids entering a recession

Lay off employees: to temporarily or permanently terminate the employment of workers

Leading indicators: indicators that suggest what will happen in the future

Pressure on growth: a force that makes growth harder

Sticking with your forecast: when you stand by, you insist, you maintain your forecast. Stick with it.

And stick with your English studies. Every little bit helps, and I am grateful to you that you find these lessons useful.

I’ll be back soon with another podcast full of English for economists. Keep well and stay tuned.

Bye bye.

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