"Q2 2022 - Still Not Dead...."

  • By: Joseph R. Tranchini, CFA
  • August 2022








How does one really know that they are sick? A seemingly simple question to answer when taken at face value, but one that may require a more pensive approach when further analyzed at a deeper level. While I am infinitely unqualified to make an actual medical assessment on this topic, allow me to at least render a few suggestions. You may be able to tell you are sick by the temperature your thermometer reads. You may be able to tell by whether or not you have a headache, or possibly a cough. Maybe you can even tell just by the general way you feel. Or perhaps, you can rely on someone with a high level of professional expertise on the matter to make the assessment for you. Unfortunately, this is not a medical journal, it is an investment article. That being said, the parallels between the two worlds are actually not all that different, especially in the context of determining the “health” of the Economy. So, break out your stethoscopes and get your calculators ready, because that is exactly what we will be doing over the next few paragraphs…

Addressing the elephant in the room, is the technical definition of a Recession 2 consecutive quarters of negative GDP growth? Yes… it is. Did we just experience 2 consecutive quarters of negative GDP growth? Yes… we did. So, are we in a Recession? By the technical definition… yes. However, the current economic environment is not really all that consistent with what you would expect a recession to look like when taking a more comprehensive look at the situation. In fact, the Federal Reserve is not even willing to characterize our current situation as a Recession. Why then is this the case? In essence, the Labor Market.

Right now, the Labor Market is widely considered to be operating at Maximum Employment levels. Stated differently, anyone who actually wants to work can find work. Given that backdrop, it seems rather contradictive that in such an environment where not only is employment bountiful, but where wages are also increasing, we would be inside of the ‘economic furnace’ that is a Recession. Let’s think about why businesses hire people in the first place. Businesses need people to help fulfill demand. When demand is strong, businesses employ more people, leading to high levels of employment across the economy. High levels of overall demand lead to high levels of employment, which is where we currently reside in this roadmap of economic events. One of the hallmark characteristics of an authentic recession would be a strong pullback in overall demand, and since we are seeing the exact opposite of such an occurrence, this would make declaring our current situation as a ‘genuine’ Recession somewhat of a puzzling proposition. To reconcile this situation with my previous metaphor I would proclaim the following….

Our thermometer tells us we are sick (2 quarters of negative GDP growth), but we do not actually feel sick (Maximum Employment levels).

While our Economy may not actually feel sick, it is most likely not feeling 100% healthy either. Why might this be the case? Everyone’s dear friend…. Inflation.

It is true that Inflation has remained stubbornly high for some time now, it is also true that this is unimaginably annoying for anyone who buys things (…which is everyone). The reason why Inflation has remained higher than expected, for longer than expected, has changed materially since the onset of our inflationary woes at the end of 2021/early 2022. Initially, Inflation was uncharacteristically high because of supply-chain disruptions attributable to widespread labor shortages that permeated all crevices of the Economy. This situation has gotten better. However, just as this situation was getting better, it was replaced by another very large source of inflationary pressure…. The Russia-Ukraine conflict. This conflict has created brand new supply chain problems which replaced the original/improving issues we initially faced.

In other words… it is the same mask (Inflation) but someone else is wearing it.

The good news is that with recent geopolitical developments such as the agreement allowing for safe passage of grain, as well as lowered expectations for a European natural gas embargo, this new culprit of inflation may have their days numbered. In fact, many Commodity prices have already materially retreated from prior highs, and at present time look a lot more ‘normal’ than they did at the start of this year. Another potential sign for relief on the horizon.

To recap our metaphorical approach to economic analysis, the Economy’s thermometer (GDP growth) is telling us that the Economy is technically sick. However, the Economy does not actually feel sick (Maximum Employment). Additionally, the professional experts on the matter (the Federal Reserve) are also telling us the Economy is not currently sick. With that in mind, where do we go from here? It is not unreasonable to expect a mild/non-uniform pullback in employment levels within specific areas of the economy as those areas renormalize to more historical activity and pricing levels. Additionally, Fed policy is likely to remain in neutral, to slightly restrictive, territory throughout the year. Inflation, although stubbornly high and immensely annoying, is showing early signs of abating, and it would not be unreasonable to see a more average-looking inflationary picture by year end. Granted, a general return to economic normalcy is not the most ‘exciting’ prognostication to ever be levied by a financial processional. However, that does not make it impossible.


[See Below for Disclosures & Annotations]


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.



  1. FactSet. “Economics – Country/Region – United States”. August 2, 2022.
  2. Bureau of Economic Analysis. “Gross Domestic Product, 2nd Quarter and Year 2022 (Advance Estimate)”. August 2, 2022.
  3. Bureau of Economic Analysis. “Labor Force Statistics from the Current Population Survey”. August 2, 2022.
  4. Bureau of Economic Analysis. “Personal Income”. August 2, 2022.
  5. FRED. “5-Year Breakeven Inflation Rate”. August 2, 2022.
  6. FRED. “10-Year Breakeven Inflation Rate”. August 2, 2022.