The Pulse

This Is Not What A Recession Looks Like

Signs of economic growth are everywhere

In its Viewpoints blog from July 2022, Fidelity asks Director Of Global Macro Jurrien Timmer to help us separate the appearance of recession with our actual economic realities. Reprinted with permission. Visit to learn more.

Viewpoints sat down recently with Jurrien Timmer, Fidelity’s director of global macro, to hear his point of view on recession risk.

Key Takeaways:

  • Although there’s a sense of dread in the air that a recession is imminent, this sentiment isn’t necessarily a reflection of the economic reality.



  • Unemployment is low, consumers are spending money, and earnings continue to grow—all of which are positive economic signs
  • Earnings reports, which can give insight into companies’ hiring and staffing plans, may offer a clearer sense of what’s ahead than the latest GDP report

The following interview has been edited for length and clarity.

Viewpoints: You’ve been saying lately that earnings season is the key indicator to watch for insights on where both the economy and the stock market may be headed. Why is that?

Timmer: Right now, a lot of people are waiting for the other shoe to drop. The Fed is in the headlines with some aggressive rate hikes, the yield curve is now slightly inverted, and there is a sense of dread that a recession is either already underway or is imminent—that it’s all just a matter of time.

Earnings season would give a window into whether that is happening. If something is going to break here in the economy it would come through in the earnings reports, because the earnings reports are where a company will tell you, “We’re not going to hire as many people,” or “We may have to shrink our payroll,” and then a few months later it becomes evident in the unemployment report. If companies start laying people off, then consumers are not going to have money to spend.

Just for the record, I don’t think a recession is either underway or imminent. But that’s why earnings season is kind of the front line.

Viewpoints: What are you seeing in this earnings season so far?

Timmer: So far, around 70% of companies have beaten their estimates, with an average earnings surprise of around 4%. That’s pretty decent and pretty much in line with a typical earnings season.

Last quarter some of the big retailers put out warnings that consumers were not shopping as much—that instead of buying refrigerators they’re going out on airplanes and traveling. So there’s a change in the mix of spending, and disposable income is being eroded by inflation.

Earnings growth is clearly slowing, but even now earnings are growing by about 10% per year. It’s not falling off a cliff by any means.

Viewpoints: When people think about “economic growth” they typically think of GDP (gross domestic product) numbers. Today’s GDP report showed a second quarter of negative growth. Does that indicate we’re already in a recession?

Timmer: This is a good opportunity to set the record straight. So the first-quarter GDP number was negative. And as we saw this morning the first estimate of second-quarter GDP came out at negative 0.9%. Because we’ve now had these 2 quarters in a row, many people may jump to conclusions and say, “We’re in a recession.”

If earnings fall, the bear market's not over. If earnings don't fall—if this turns out to be the dog that does not bite—then the bear market's probably over...

But I don’t believe that is correct, because having 2 quarters of negative GDP growth doesn’t necessarily mean we’re in a recession. The National Bureau of Economic Research (NBER) is the official arbiter of when we are in a recession, and it’s based on a number of indicators. It’s not, as is commonly believed, defined as a succession of 2 quarters of negative GDP. Most recessions include 2 consecutive quarters of negative growth, but not all 2 consecutive quarters of negative growth include a recession.

Viewpoints: But still, isn’t 2 quarters of negative GDP growth an ominous sign?

Timmer: The second-quarter GDP numbers can likely be explained by exports versus imports and by inventories. Many companies double- and triple-ordered stock during the supply-chain bottleneck days, and now they have too much stuff. So companies are stuck with too much inventory—there’s an inventory overhang.

We can technically have a contraction just from that, because if companies have too much stuff already then they may stop making stuff. The NBER at some point will come out and either say we’re in a recession or they won’t. And who knows, if they do, then by the time they say that, any recession might already be over.

But this type of technical contraction is a very different situation than one in which consumers are losing their jobs and therefore not spending money. The labor market has rarely been tighter than it is today. The most recent nonfarm payroll report still produced close to 400,000 new jobs. And if you look at the travel stats, they’re the highest they’ve been in years.

The US consumer is employed, has money to spend, and is spending it. When around 70% of the economy is consumer spending, it’s hard for me to connect the dots between that and recession.

Viewpoints: How does this play into your outlook for stocks?

Timmer: If earnings fall, the bear market’s not over. If earnings don’t fall—if this turns out to be the dog that does not bite—then the bear market’s probably over.

The average decline in a non-recession bear is around 22% over 4 months. The average decline in a recession bear is about 35% over 19 months, so totally different animal. At the worst point this year we were down around 25% over 6 months. Thus far, the market action has been completely consistent with a non-recession bear market. The decline has been all about valuation—the market’s P/E (price-to-earnings) ratio is down—but earnings have continued to grow.

If earnings don’t fall, it doesn’t mean we’re going to go to new highs tomorrow. But the 25% fall we’ve already seen is plenty, and fully reflects what’s happened in interest rates.

And in that case, if we get any positive surprise on inflation, you could get kind of a relief rally because it would mean maybe the Fed doesn’t have to push rates up as far as the market is expecting.

Viewpoints: So it’s possible that sense of dread we’re all feeling is overdone?

Timmer: If we can do this whole Fed-tightening cycle without triggering a recession, then the market’s in really good shape actually. But it’s a big “if.”