US : so when is the recession coming?

By Philip Bold, Portfolio Manager at Ethenea

In 2022, consumption held up incredibly well in the US. It was boosted by excess savings from the time of the COVID-19 pandemic and a strong labour market. However, both factors are starting to falter. Despite everything, the only scenario the equity market seems to be considering is a mild recession.

Consumer spending, especially in the U.S., is the backbone of the economy. One look at U.S. GDP will confirm this: at 70%, it accounts for the lion’s share of economic output. The state of consumer spending, therefore, gives a good insight into the state of health of a nation’s economy. In view of the double whammy of higher prices – for instance, for food and gas – and higher interest rates – such as on mortgages – consumer stress has been higher in 2022 than in decades. Despite these annoyances, consumer spending held up incredibly well last year.

U.S. GDP did fall in the first and second quarter, which, according to the rule of thumb, qualified as recession, but the U.S. was not officially in recession. This caused a degree of confusion, as was evident from the number of Google searches for the term “recession”, which shot up at the end of July after the release of the initial estimate for second-quarter GDP. A rule of thumb is therefore not enough; what is needed is a fine sense of understanding. The National Bureau of Economic Research (NBER) has the final say on whether or not the U.S. is in recession. The NBER states that the breakdown of GDP (as well as other factors, such as the labour market) plays a role. In fact, the negative growth in the first quarter was as a result of a trade deficit and the negative growth in the second quarter was mainly attributable to the decline in inventories. However, consumer spending continued to increase strongly throughout the year.

One would have thought otherwise from the adverse environment in 2022. One reason for the strong consumer spending was the excess savings that had been accumulated during the COVID-19 crisis acting as a buffer. The combination of state transfer payments and less spending during the lockdowns greatly increased the size of U.S. citizens’ savings. The U.S. central bank, the Fed, estimates that an extra USD 2.3 trillion was saved in 2020 and 2021. Another reason is that the strong labour market boosted growth in consumption. At the end of the year, the unemployment rate of 3.7% was close to the historical low in past decades. The vast majority of the labour force is therefore in employment.

Pressure on consumer spending

However, both factors are starting to falter. The excess savings from the time of the pandemic have been dwindling since the third quarter of 2021. These diminishing extra savings and the economic uncertainty are affecting consumer sentiment. According to a consumer survey conducted by the University of Michigan, willingness to purchase durable household items has recently fallen to historical lows. The same goes for the purchase of other discretionary goods. However, there are also signs of problems with buying everyday items. In the latest household survey by the U.S. Census Bureau, around 40% of respondents said they were finding it difficult to cover ordinary household expenses. The pressure on the low income brackets – those who are living from hand to mouth, so to speak, and who are particularly hard hit by falling real wages – is becoming apparent. At the same time, the labour market is on the turn. Although anecdotes about recruitment freezes and layoffs are coming mainly out of the technology sector, they are happening across the board. Leading labour market indicators – such as initial claims for unemployment benefit – confirm this trend. This will put additional pressure on consumption.

The positive contribution that consumer spending made to GDP in 2022 therefore seems to be touch and go for 2023. And once the labour market turns there will be nothing standing in the way of recession. Or will there? The inversion of the yield curve at any rate shows that bond market participants consider an economic downturn likely. The equity market, on the other hand, lost a lot of ground in 2022, as a result of which valuations have more or less returned to normal; however, an earnings recession on the corporate front would take a greater toll. Although everybody is talking about recession, the equity market, which anticipates real economic development, only seems to be considering a relatively mild recession. Where to for consumer spending?

Philip Bold
Philip Bold

Press contact

Wim Heirbaut

Senior PR Consultant, Befirm

Get updates in your mailbox

By clicking "Subscribe" I confirm I have read and agree to the Privacy Policy.

About Ethenea

ETHENEA offers a wide range of attractive investment opportunities for different investor profiles: risk-minimised, balanced and equity-focused.

Capital preservation and the achievement of stable long-term returns are key components of the investment philosophy of the Ethna Funds. The fund management consistently realises this objective through active management and flexible asset allocation across various sectors and asset classes.

ETHENEA wants to make a contribution and offer responsible and sustainable investment solutions. Therefore, ESG criteria are an important part of the investment processes of all Ethna Funds (Article 8 SFDR).

Further information and legal information can be found at


PRESS RELEASE – not an official document

We would like to point out that all data and information made available to you has been thoroughly researched by ETHENEA. However, with regard to its correctness and completeness, we cannot assume any liability or warranty for damages incurred either by the recipient of this information or by third parties, either directly or indirectly. In the event that this text is published in any form and to any extent, the publishing entity (editorial office of the newspaper or associated or commissioned third parties, website, podcast, etc.) is obliged to include the necessary disclaimers and legal notices. In addition, in this context, we refer to our legal information: The information contained in the attached document does not constitute a solicitation, offer or recommendation to buy or sell units in the fund or to engage in any other transaction.  It is intended solely to provide the reader with an understanding of the key features of the fund, such as the investment process, and is not deemed, either in whole or in part, to be an investment recommendation. The information provided is not a substitute for the reader's own deliberations or for any other legal, tax or financial information and advice. Neither the investment company nor its employees or Directors can be held liable for losses incurred directly or indirectly through the use of the contents of this document or in any other connection with this document. The currently valid sales documents in German (sales prospectus, key information documents (PRIIPs-KIDs) and, in addition, the semi-annual and annual reports), which provide detailed information about the purchase of units in the fund and the associated opportunities and risks, form the sole legal basis for the purchase of units. The aforementioned sales documents in German (as well as in unofficial translations in other languages) can be found at and are available free of charge from the investment company ETHENEA Independent Investors S.A. and the custodian bank, as well as from the respective national paying or information agents and from the representative in Switzerland. The paying or information agents for the funds Ethna-AKTIV, Ethna-DEFENSIV and Ethna-DYNAMISCH are the following: Austria, Belgium, Germany, Liechtenstein, Luxembourg: DZ PRIVATBANK S.A., 4, rue Thomas Edison, L-1445 Strassen, Luxembourg; France: CACEIS Bank France, 1-3 place Valhubert, F-75013 Paris; Italy: State Street Bank International – Succursale Italia, Via Ferrante Aporti, 10, IT-20125 Milano; Société Génerale Securities Services, Via Benigno Crespi, 19/A - MAC 2, IT-20123 Milano; Banca Sella Holding S.p.A., Piazza Gaudenzio Sella 1, IT-13900 Biella; Allfunds Bank S.A.U – Succursale di Milano, Via Bocchetto 6, IT-20123 Milano; Spain: ALLFUNDS BANK, S.A., C/ Estafeta, 6 (la Moraleja), Edificio 3 – Complejo Plaza de la Fuente, ES-28109 Alcobendas (Madrid); Switzerland: Representative: IPConcept (Schweiz) AG, Münsterhof 12, Postfach, CH-8022 Zürich; Paying Agent: DZ PRIVATBANK (Schweiz) AG, Münsterhof 12, CH-8022 Zürich. The paying or information agents for HESPER FUND, SICAV - Global Solutions are the following: Austria, Belgium, France, Germany, Luxembourg: DZ PRIVATBANK S.A., 4, rue Thomas Edison, L-1445 Strassen, Luxembourg; Italy: Allfunds Bank S.A.U – Succursale di Milano, Via Bocchetto 6, IT-20123 Milano; Switzerland: Representative: IPConcept (Schweiz) AG, Münsterhof 12, Postfach, CH-8022 Zürich; Paying Agent: DZ PRIVATBANK (Schweiz) AG, Münsterhof 12, CH-8022 Zürich. The investment company may terminate existing distribution agreements with third parties or withdraw distribution licences for strategic or statutory reasons, subject to compliance with any deadlines.