The U.S. second-quarter GDP has been significantly revised upwards, why hasn't the recession that has been talked about arrived?

Since the Federal Reserve started an unprecedented rate hike cycle two years ago, voices about the recession in the United States have been overwhelming.

As early as 2022, the leading economic index of the World Large Enterprise Federation first issued a signal of economic recession; the highly anticipated U.S. yield curve has been inverted since the second half of 2022 and the magnitude continues to expand, continuously issuing recession warnings; even the widely accepted definition of a recession by the general public - two consecutive quarters of GDP decline - occurred in 2022. By 2024, the July non-farm unemployment rate unexpectedly triggered a recession indicator - the Sam rule.

However, the significantly revised overnight U.S. GDP for the second quarter (annualized quarter-on-quarter from 2.8% to 3%) clearly conveyed a blockbuster positive signal: the U.S. economy is not in recession, fiercely refuting analysts who had predicted a recession.

According to FactSet data, the number of times U.S. listed company CEOs mentioned the word "recession" on conference calls is at the lowest level in nearly three years.

The refutation of the recession theory also reveals a cruel fact about the economic recession prediction game: economic recession indicators are not perfect, and may never be perfect.

"It's really hard to understand the economic situation now"

Campbell Harvey, a professor at Duke University and a Canadian economist who invented the inverted yield curve indicator, recently told Yahoo Finance: "The economy is very complex... We are unlikely to get perfect indicators."

Since 1968, the inverted yield curve has appeared 8 times before an economic recession, successfully warning of it each time. However, since November 2022, the indicator has been in the red, and Harvey admits that its undefeated record may have ended.

"It's really hard to understand the economic situation now," said Claudia Sahm, creator of the Sam rule, former Federal Reserve economist, and current Chief Economist at New Century Advisors.

After the July non-farm unemployment rate triggered the Sam rule, recession panic quickly spread in the market. However, Sahm later stated in an interview that the Sam rule has lost its effectiveness, and cannot prove that the U.S. economy has already entered a recession. Sahm believes that the current rise in unemployment is not due to a weakening demand for workers in the market, but rather due to an increase in labor supply. For example, the surge in immigration to the United States after the epidemic has promoted the recovery of the job market, leading to an increase in the unemployment rate, which can no longer be used as a reference for a recession indicator.

Sahm also said: "In fact, I don't know how much of this is caused by immigration, and how much is caused by weak demand... or both."

Predicting economic recessions is like rolling dice

Both economists face the same dilemma: in cases of very few observations, these recession indicators may trigger false alarms.

"We have had 8 observations (since 1968)," Harvey said, "that's it. With only 8 observations, you can't do much."

It is worth noting that looking at data alone may not reveal some worrying signs behind economic recessions. Pulitzer Prize winner Steven Pearlstein stated that most recessions in recent years have been the result of bursting financial bubbles, "and these economic data do not really explain that."

Jason Furman, an economist at Harvard University and former chair of the Council of Economic Advisers during the Obama administration, jokingly said: "Almost all (successful in predicting recessions) economic indicators fail to predict the arrival of the next recession."

He added, predicting economic recessions is like rolling dice. If you roll a 1, maybe there will be an economic recession, if you roll a 2-6, maybe things will improve. Sometimes the likelihood of an economic recession is greater, but it can never be certain