"Q3 2022 - The Great Mirage"

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








Now you see me… Now you don’t

And just like that, the Technical Recession is over. Let’s take a tally of all the ‘terrible’ things that happened during this Technical Recession. Number of Net Jobs lost during the Technical Recession…. 0. No, in fact, we added a little over 2.9 million jobs during the Technical Recession. Additionally, the number of Employed Persons is currently at an all-time high.


What about job opportunities? Well, we reached a new all-time high level of job openings over the Technical Recession and are still currently operating at very lofty levels of outstanding openings. In fact, there are just under 2 Job Openings for every Unemployed Person in the Economy, another level consistent with all-time high levels the Economy has ever experienced. These levels are so lofty that the Federal Reserve has even made it a point to watch for them to come down as a measure of Monetary Policy effectiveness.


Surely GDP is in a bad spot, right? No, not really. Here is a running last three quarters of GDP growth from Q1 22’ to our most recent reported quarter, Q3 22’ (-1.60%, -0.60%, +2.60%). Chain those numbers together and you get a positive number. I may not have a Ph.D. in Mathematics but I’m fairly certain that means GDP is higher now than when we started the Technical Recession.


What about the Consumer, the lifeblood of the Economy? Personal Income, as well as Personal Spending, are both higher now than when the Economy entered the Technical Recession. Yes, Inflation has been stubbornly high and that is a difficult environment for low-income households who are not as able to benefit from Consumer Substitution effects as much as higher income households. That is troubling. However, a bright spot in that narrative is that Wage Growth has been more pronounced for individuals on the lower end of the income spectrum. This has been a beneficial, mitigating effect for those who have been more acutely affected by higher prices of everyday goods and services. As a reference to that notion, over the past 12 months Weekly Employee Earnings have increased by 12.56%, whereas Prices only increased by 8.2%.


Corporations must be hurting though, right? Again, no not really. S&P 500 Sales growth was over +17.00% for every quarter in the Technical Recession. As a reference, when comparing this figure to what Sales Growth looked like in a genuine recession (08-09’ Financial Crisis) we see that Sales growth was negative in that period, not double-digit positive.



My point is this… that was not Genuine Recession, it was a Mirage. Wherein it felt like there was something there, but when you go to take a look…. nothing.


That being said, the economy is in a unique position at present time. A cooling economy does not necessarily equal a broken economy. In a nutshell, that is pretty much where the economy currently is. Are certain areas of the economy cooling-off? Indeed, they are. However, were those areas of the economy abnormally hot to begin with? Yes, indeed they were. When looking forward, it would seem the relevant question to ask would be “Does the economy cool-off too much and throw us into a Genuine Recession?”. My subjective opinion on the matter is… no.

From a conceptual standpoint, a Genuine Recession would need to be accompanied by sustained/material contractions in Consumer Spending, and I believe that scenario is unlikely to occur without substantial Job Loss preceding it. Is substantial Job Loss in the cards then? In my view, no. Keep in mind where the economy currently stands regarding, the historically high number of Job Openings per Unemployed Persons metric. From the current elevated levels, it is unlikely that a moderation in employment to more historically average levels would carry with it the type of Consumer Spending contraction that would warrant a Genuine Recession; rather, it would constitute a normalization of an overheated economy more than a structural deterioration in the United States’ economic fundamentals. In other words, the economy is not succumbing to frostbite, its fever is cooling-off.

I will conclude this quarter’s commentary with a final parting note to consider. Even though at times it may feel like the economy is in a certain place, it is important to consider whether or not what is being felt is economic reality rooted in objective factual evidence, or just simply… a mirage.


[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.

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