Michael Darda, chief economist and market strategist at MKM Partners, joins ‘The Exchange’ to discuss Fed funds futures, hard landing indicators and confusion over future rate cuts. For access to live and exclusive video from CNBC subscribe to CNBC PRO:
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Below Trend Growth with a Rising Unemployment Rate Means Recession, Says MKM’s Michael Darda
In the world of economics, there are various indicators and measures that are used to determine the health and state of an economy. One such measure is the pace of economic growth, commonly referred to as GDP growth. When a country experiences a period of economic growth that is slower than its long-term average, it is said to be in a state of below-trend growth. More often than not, this is a cause for concern as it can have significant implications for the overall well-being of an economy.
Michael Darda, Chief Economist and Market Strategist at MKM Partners, argues that below trend growth coupled with a rising unemployment rate is a clear indication of an impending recession. Darda’s analysis of economic data suggests that when an economy is unable to sustain its long-term growth rate and its job market starts to deteriorate, it is likely to face a period of recession.
The relationship between economic growth and unemployment is a complex one, with each factor influencing and being influenced by the other. In a healthy economy, as GDP grows, businesses expand, and there is an increased demand for labor. This leads to a decrease in unemployment rates as more job opportunities become available. Conversely, during a recession, economic activity declines, businesses contract, and fewer jobs are available. This results in an increase in the unemployment rate as people struggle to find employment.
Darda explains that below-trend growth, often characterized by sluggish or declining GDP growth, is a sign that an economy is not expanding at its usual pace. This could be due to various factors such as a lack of consumer spending, reduced business investment, or global economic instability. As the economy slows down, companies may start reducing their workforce, leading to an increase in the unemployment rate.
The connection between below-trend growth and rising unemployment is particularly worrisome as it can create a negative feedback loop. A rise in unemployment means a reduction in consumer spending, as individuals have less disposable income. This, in turn, further hampers economic growth and exacerbates the problem. With fewer people employed, tax revenues decrease, putting additional strain on government budgets and public services.
Recognizing the signs of below-trend growth and a rising unemployment rate is crucial for policymakers and investors. It allows them to take proactive measures to avert a full-blown recession and mitigate its impact. Governments can implement fiscal stimulus measures, such as tax cuts or increased public spending, to encourage economic activity and job creation. Central banks can use monetary policy tools, such as lowering interest rates or implementing quantitative easing, to boost lending and investment.
For investors, understanding the implications of below-trend growth and rising unemployment can help formulate investment strategies that align with the economic environment. During periods of economic slowdown, defensive sectors such as utilities and consumer staples may outperform cyclical industries like manufacturing or construction. Bonds and other fixed income assets may also fare better as investors seek safer havens during times of economic uncertainty.
In conclusion, below trend growth with a rising unemployment rate is an alarming combination that indicates an economy is headed for a recession. Michael Darda’s analysis highlights the importance of recognizing these signs and taking appropriate action to prevent further deterioration. Whether you are a policymaker or an investor, understanding the implications of below-trend growth and rising unemployment can be instrumental in navigating through turbulent economic times.
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CNBC: I have BREAKING NEWS for you. We went into recession January 2022. We are now completing 14 months in recession. Tomorrow is the start of the 15th month of recession. Learn the facts, stop the lies and come into reality.
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What is the new definition of recession?