The little-known Phillips curve points to recession 'in late 2024 or early 2025', strategist warns

It won’t be long before the U.S. economy enters into a deep recession marked by rising unemployment and a sharp decline in consumer spending.

That’s according to Peter Berezin, the chief global strategist of BCA Research, who warned that the rosy economic picture painted by the Fed and mainstream economists simply isn’t true.

Berezin’s prediction hinges on the so-called “Phillips curve”—which measures the relationship between inflation and unemployment. He believes it points to a significant jump in unemployment this year.

"The reason the U.S. avoided a recession in 2022 and 2023 was because the economy was operating along the steep side of the Phillips curve,” Berezin wrote, referring to the fact that, while inflation was high, unemployment was still very low.

“When the labor supply curve is nearly vertical, weaker labor demand will mainly lead to lower wage growth and falling job openings,” he said.

Berezin thinks the job market will slow significantly in the coming months, further straining consumer spending, which drives more than two-thirds of U.S. GDP.

Considering all this, the strategist believes the U.S. will enter a recession later this year or early next year.

Berezin’s views might seem counterintuitive, but there’s already evidence that the things he’s warning about are coming true.

Worrying signs for the economy

Although the U.S. labor market continues to add hundreds of thousands of jobs each month, economists warn that the picture isn’t as rosy as it seems.

For starters, the total number of workers collecting unemployment benefits reached 1.86 million for the week of June 22—marking the ninth consecutive weekly increase and the highest since November 2021.

Also, in June, the unemployment rate rose to 4.1%, the highest it has been since November 2021.

According to Bloomberg editor Edward Harrison, the three-month average U.S. unemployment rate is growing at a pace consistent with that seen just before a recession.

A recession isn’t about “how low the unemployment rate is. It’s about how much things unravel such that people start cutting back on spending,” he said.

There’s evidence that Americans are already tightening their belts.

Citing Census Bureau data, economist David Rosenberg recently wrote that U.S. retail sales volume declined at an annual rate of 1.3% in the second quarter, following a 4% decline in the first three months.

Meanwhile, a new study by TransUnion found that more than half of U.S. adults cut back on discretionary spending in the second quarter.

“The weakness in the consumer can now be considered a trend,” Rosenberg said, adding that there are “early signs of a consumer recession finally coming to the fore.”