Issues like stagnation, an aging labor force and government debt could cause more problems as traditional recession indicators remain stable.
Georgetown Professor Nada Eissa explains why she believes the Fed’s actions to get inflation under control will likely lead to a recession.Spiking inflation was the story of 2022, while recession risk could emerge as the dominant economic theme for 2023.Granted, recessions usually are painful, especially a big one like that from 2007-2009. Unemployment rises, companies fail, businesses and people file bankruptcies, the stock market tanks and home prices often soften.
Unemployment typically rises during recessions, but Cochrane argued that labor force participation matters more. Participation measures the percentage of working-age adults in the labor force, either employed or looking for jobs. By contrast, the unemployment rate focuses on the number of people who are out of work but looking.
At least, that's the conventional view. Yet the yield curve inverted around mid-2022 but a recession hasn’t yet materialized. In fact, U.S. economic growth perked up later in the year. The outlook for 2023 remains inconclusive. “Economic models help simplify a complex world but it’s important to remember that signal isn’t always accurate and sometimes things are, in fact, different,” he added.Possible role of accounting fraud
Exaggerated sales numbers are one type of misstatement, the researchers noted. Problems also can arise with profit margins, accounts receivable, overhead expenses and other areas.
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