July 11, 2022

By Harris L. Kempner, Jr., President


The most significant challenge facing anyone trying to deal with our present-day economy is to decide whether a recession is imminent in the United States, i.e., is it going to happen in 2022. The economy has slowed down considerably from the enormous strength of last year. Inflation for the first six months has been at 50-year highs and there is an enormous amount of gloom in both the consumer and in the investing world. Nevertheless, we think that the built-in economic strengths of the U.S. economy are enough that no recession will take place in 2022, despite all the negatives referred to above.




  1. First, and foremost, the strength in the labor market.

    The most recent report showed the creation of 375,000 jobs in the economy – much stronger than estimated. The unemployment rate has remained near all-time lows at 3.6% and hours worked have increased .3% during the month of June. Employment is reduced in a recession, and certainly does not grow at a rate which is higher than the average growth for the past decade. For sure, this indication is not in recessionary territory.

  2. The Baa spread

    The Baa spread is the interest rate differential between Baa rated “junk” bonds and 10-year Treasuries. This difference is actually narrowing, not surging. This indicates that there are few significant credit worries in the market. Yet in all recessions there is a widening of this Baa spread, not a narrowing. No recession here either.

  3. Yield Curves – Short-term vs long-term bond rates

    This is very clear cut. The interest rates of the Federal Funds have exceeded the 10-year bond interest rate in every single recession going back to 1929. Even if the Fed raises the rate for Fed Funds by another seventy-five basis points in this month, this inversion is unlikely to happen. And by the way, it is a preliminary indication because the recessions usually take place a year to 18 months after such a phenomenon, not right away.

  4. Inflation is cooling down

    This is a comment that not too many people have made but it is evident in prices for commodities, services, goods sold in stores, and machinery. This is in the face of a number for the June inflation that will be very high because it was in early June that energy prices shot up as high as we have not seen in over 10 years. But in the latter part of June and throughout all of July so far, the prices of everything we have mentioned and more, are coming down, and in some cases, rapidly from their highs.


These factors, in our opinion, outweigh the slowdowns mentioned above. We are watchful, of course, for changes, but so far, we do not see enough evidence that a recession is imminent or will take place in 2022. As a result, our estimate is for a positive 1 ½% real GDP for 2022, a 6% inflation rate for 2022, and therefore a 7 ½% nominal GDP growth for the year.