The “Pasta Bowl Recession” – what it means for investors

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The central theses

  • Sean Snaith predicts the US is headed for a ‘pasta bowl recession’
  • That recession, he says, could come on gradually and ease off just as gradually, just like the shape of a pasta bowl
  • He also adds that a “pasta bowl recession” could help the Federal Reserve fight inflation by reducing demand for supply chain growls
  • Many economists now believe we are on our way to – or are already in – a mild recession, although predictions vary

The US economy is in a strange place. Despite ongoing supply chain problems, rising inflation and falling consumer confidence, no one can quite agree on whether a recession is on the horizon. While many economists are predicting a recession could occur, conflicting economic data suggests that we could avoid a significant downturn entirely.

But now there is Is correct Expert to weigh in: the man who accurately predicted the end of the Great Recession of 2009.

Sean Snaith is Director of the Institute for Economic Forecasting at the University of Central Florida. He is also a national economist and is widely regarded as an expert in economics, forecasting, analysis and market sizing.

Snaith’s quarterly reports and timely economic forecasts have led Bloomberg News to name him one of the most accurate economic forecasters in the country. And now, over a decade after he coined the “sauce recession,” he’s back with more nutrition-related economic descriptors.

Enter: The recession of the noodle bowl.

The Pasta Bowl Recession

In his latest economic forecast, Sean Snaith stated that the country was facing a recession of about a year. Additionally, he forecasts this to be a mild economic slowdown only what we need to overcome our inflation problems.

A recession by another name

The name “pasta bowl recession” comes from economists’ penchant for using metaphors to describe the shape of recessions. Letters from the English alphabet are often used, such as V-, U- and L-shaped indentations. (There’s also the W-shaped recession, or double-dip recession, which occurs when one recession follows another. Some have argued that we’re headed for a W-shaped recession next year.)

In his recent economic analysis, Snaith noted that we appear to be headed for what resembles a mild recession. But given our unique circumstances, none of the above descriptors seemed appropriate. So he abandoned the more usual alphabetical classification for another.

Snaith — who previously coined the term “sauce recession” — found that once again, food-related terminology held the answer. He wrote this after observing that “The English alphabet has no letter that can describe our projection… We turn to the culinary world to find a descriptor for the shape of this recession and recovery. So, without further ado, we give you: The Pasta Bowl Recession.”

About the shape of things

So why name a recession after ordinary dishes?

Snaith explains that pasta bowls are “wide, low, and flat – essentially high-walled plates that offer the best that both plates and bowls have to offer.”

And that’s exactly what he expects from an upcoming recession.

Snaith believes the US is already slipping or will soon slip into a shallow recession. He predicts it won’t be deep, but will likely last four quarters, which represents “the wide part of the noodle bowl.”

Snaith also notes, “When we get out of this recession, there won’t be a rocket-propelled recovery like we saw in 2020. We will slowly come out of the noodle bowl as we went in. This recession will start and end with a whimper.”

All in all, Snaith expects a potential recession to last about a year.

Expert predictions by numbers

To examine the potential impact of a pasta bowl recession, let’s take a look at some of Snaith’s economic forecasts.

First, Snaith forecasts real gross domestic product (GDP) to ease slightly before a rebound. In 2020, GDP bottomed out at -3.4% before rising to 5.7% last year. Current models suggest that real GDP could fall by up to 1.4% this year, contract in 2023 and 2024, and increase to 1.8% in 2025.

These swings are likely driven by consumer spending, which accounts for around 69% of GDP. Falling consumer confidence, 40-year high inflation and uncertain 3-year inflation expectations are the main reasons why the economy could experience a recession.

Accompanying his GDP numbers, Snaith sees consumer spending falling from 7.9% in 2021 to 0.4% in 2023. By 2025, consumer spending could rise to 1.5%. In addition, job growth, which hit 3.7% this year, is likely to slow to -1% in 2024 before recovering to around 0.6% in 2025.

Finally, Snaith notes that a tight housing market, characterized by rising mortgage rates, high prices and ultra-low inventories, continues to erode demand. He predicts housing starts could fall by about 0.2 million by next year, and that number could hover around that level for the next three years.

“The Cure That Cures Our Economy”

Sean Snaith also predicts that a pasta bowl recession “might just be the cure for what’s ailing our economy.”

In particular, Snaith sees a mild recession as a way to correct an overheated economy hit by sky-high prices and supply chain problems. In theory, a slight slowdown would give the Federal Reserve time to “get a grip on inflation” while giving the global supply chain time and space to straighten out.

And while past recessions have literally brought economies to a standstill, a pasta bowl recession could come with far less economic and personal cost.

“Blood in the Water”

During the Covid-19 pandemic, the government launched unprecedented fiscal stimulus to combat the effects of lockdowns.

At the same time, the Federal Reserve introduced near-zero interest rates and quantitative easing. The result was an astronomical recovery in financial markets and a balance sheet that exploded to $8.9 trillion.

This policy “has had the same effect as blood in the water in sharks,” fueling in part the spending frenzy that has lasted nearly 18 months after lockdown ended. This consumer spending helped pull the economy out of the Covid-19 recession. Unfortunately, alongside high spending and supply chain crunches, it also helped drive up gas, food and housing costs.

Now the Fed has to catch up — often in ways that hurt investors as it seeks to ease the burden on consumers. As a result of his delayed response, Snaith sees the Fed raising interest rates “in large increments” at each of its remaining meetings in 2022.

At the same time, the looming recession could help the Fed and potentially allow it to ease rate hikes earlier than expected.

Millions of job offers could cushion the blow

With approximately 11.4 million job openings across the US and a declining churn rate, employees have unparalleled job security. At the same time, an unprecedented labor market has put strong upward pressure on wages and salaries.

Going into a recession with so many openings isn’t necessarily a bad thing.

Consider that before the 2001 recession, around 5.1 million jobs remained vacant. In the months leading up to the Great Recession, that number declined slightly to 4.6 million.

This leaves our current situation with more than twice as many job offers before a possible recession. With so many vacancies, companies have the opportunity to eliminate vacancies instead of (or in addition to) conducting layoffs, which can lower inflation without catastrophically increasing the unemployment rate.

Still, Snaith expects unemployment to rise from 3.6% to 6.5% by the end of 2024, before gradually declining in 2025.

Is a recession likely?

Snaith believes that “the US economy is on the verge of, if not already in, a recession.” However, nobody has made an official statement (and that can only come after the data is received anyway).

Nonetheless, banks and economists continue to raise the likelihood of a mild recession – although consensus has not yet been reached.

For example, Richard Kelly, head of global strategy at TD Securities, said Monday that the US has over a 50% chance of experiencing a recession in the next 18 months. He cites high fuel costs, a hawkish Fed and a slowing economy as the top risks of a recession.

Similarly, Nomura released a report last month declaring that a recession was “now likely.” And investment firm Muzinich believes a recession isn’t a “if” but a “when.”

On the other hand, David Roche, President of Independent Strategy, thinks a recession is far away as the US job market remains strong. And around 30% of the economists polled by Fortune believe a recession won’t come until 2024.

Despite the lack of consensus, economists predict the Fed will be preparing for more rate hikes. Many experts assume that the consumer price index in June will show increased inflation of 8.8% compared to the previous year.

However, White House inflation data suggests these numbers are outdated and not worth panicking as they don’t reflect the recent drop in energy prices.

Gravy, pasta – you name it, we’re here for it

All the talk of food and recession makes you hungry – for a portfolio that is fit for the economy.

Okay, well, there is no such thing. And we know there’s no way to predict a recession (or lack thereof) with absolute accuracy, no matter how it’s called.

But we do know we can help investors prepare for whatever comes their way with a variety of AI-powered investment kits. From protecting your dollars with our Inflation Kit to hedging with precious metals, we have everything you need to secure your future.

And while nothing is ever 100%, it’s hard to beat advanced algorithms built on hard data. As an extra precaution, we also offer portfolio protection to ensure you never take on more risk than you can afford.

With Q.ai, you’re never left powerless or in the dark, recession or not. (Maybe a little hungry for pasta.)

Download Q.ai today for access to AI-supported investment strategies. If you deposit $100, we’ll add another $50 to your account.

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