What Constitutes a Recession? It’s More Complicated Than You Think

So did the U.S. just enter a recession? It depends on who you ask.

As you no doubt heard, U.S. real gross domestic product (GDP) retreated for the second consecutive quarter, falling 0.2% in the June period after a decline of 0.4% three months earlier.

For many people, this is a clear indicator that the country is in recession.

But according to the committee that’s responsible for making the official call on what constitutes a recession, it’s more complicated than that.

That committee is the Business Cycle Dating Committee, part of the U.S. National Bureau of Economic Research (NBER). Way back in November 2001, the eight-member group of economists sought to clarify how it defines a recession. Interestingly, the members said that they give “relatively little weight to real GDP because it is only measured quarterly and is subject to continuing, large revisions.”

So if not GDP, what do they look at?

Employment and Wages Are Up, but Business Conditions Contracted in July

In the committee’s eyes, a recession is “a significant decline in activity spread across the economy.” This decline, it adds, is “visible in industrial production, employment, real income and wholesale-retail trade.”

Some of the areas mentioned above are strong right now, while others are clearly slowing.

On the plus side, the U.S. jobs market remains robust, and wages and salaries continue to grow. In the second quarter, the employment cost index (ECI), which measures total compensation for private workers in all industries and occupations, rose 5.5% compared to the same quarter last year. Although the increase is not enough to keep up with inflation, it’s a healthy jump, nonetheless.

On the other hand, business activity appears to be slowing. The preliminary reading of the overall U.S. business market shows that conditions deteriorated in July. The Flash U.S. PMI Composite Output Index, which combines the services and manufacturing industries, came in at 47.5, the first contraction since June 2020. The only part of the economy that reported expansion in July was manufacturing, which recorded a 52.3.

Hope for the Best, Prepare for the Worst

So again, has the U.S. economy entered a recession? The best answer to this question is: Maybe. There are conflicting signals. Inflation-adjusted GDP has indeed fallen for two straight quarters, but this alone doesn’t mean a pullback has begun, according to economists.

In fact, it’s possible, although rare, for the economy to experience two or more quarters of negative growth and still not officially be in a recession. From what I can tell, the last time this happened was in 1947.

Similarly, the U.S. economy can slip into a recession without recording a decrease in GDP for two quarters. This happened in 2001, during the dotcom bubble.

As you may know, there’s a lot of controversy and disagreement right now surrounding the exact characteristics of a recession, just as there has been in the past. A member of the Reagan administration, for instance, tried to lobby the head of the NBER to roll the 1981-1982 recession into the 1980 recession, which occurred before President Ronald Reagan took office, so that it could be blamed on his predecessor.

Today, a lot of people want to be able to blame the Biden administration for an economic slowdown. They may get that chance.

For now, I believe the most important thing any of us as investors can do is hope for the best and prepare for the worst. That goes regardless of where you stand on this issue.

Building Our Resilience in a Rising Interest Rate World

Consider what McKinsey & Company said this week. The consultancy firm stressed that now is a time “when companies can make the kind of pivot that strengthens their growth trajectory for the next several years.” The companies that are in the best position to weather a potential slowdown and thrive afterward, according to McKinsey, have “strong balance sheets, low leverage and ample cash.”

It’s largely for this reason that U.S. Global Investors has been building up its cash levels. In the event of a recession, and with interest rates on the rise, we want to have adequate amounts of dry powder to not only survive but also make acquisitions if the opportunity presents itself.

Farewell to a Very Special Friend

On a final note, I wish to share some sad news. This week, Lundin Gold regretfully announced that its founder and former chairman, Lukas Lundin, passed away at the age of 64, following a two-year battle with brain cancer.

Born in Stockholm, Sweden, Lukas founded Lundin Gold in 2014 and was Chairman of the Board until he stepped down earlier this year. Before that, he worked for years with his father Adolf Lundin and brother Ian Lundin in a number of resource mining companies collectively known as the Lundin Group, which cover a broad range of materials from gold to copper to oil. Besides Lundin Gold, these companies include Lundin Mining, NGEx Minerals, Lucara Diamond, International Petroleum and more.

I had the pleasure of knowing Lukas well. He was an amazing father to his four sons Harry, Adam, Jack and William, all of whom are involved in the family business, and he was as creative a force in the mining community as you could find. He always had a big smile and a can-do, will-do attitude. A special friend, he was thoughtful, kind and generous with others. May he rest in peace. 


Energy & Natural Resources


  • The best performing commodity for the week was the September DCE Iron Ore Futures contract, up 17.55%, which jumped on speculation that China would establish a real estate fund to help developers bolster the property market. TRP’s Keystone Pipeline returned to full capacity after completion of necessary repairs to an electric substation. The crude oil pipeline from Hardisty, Alberta to Patoka, IL and Cushing, OK had operated at a reduced capacity since July 17, 2022, after vandalism damaged a transformer at an electric substation in rural South Dakota that solely services the pipeline. TRP subsequently declared force majeure given the impact to its Carpenter pump station.
  • Global LNG output in June 2022 was 383 million tonnes (Mt), implying capacity utilization of 83%. Production was 2% higher than the prior month and 13% higher than the previous corresponding period. Higher Asian production was partially offset by lower North American and African output, which were impacted by the outage at Freeport LNG and maintenance at Angola LNG, respectively.
  • According to Baker Hughes, the Canadian rig count averaged 112 in the second quarter of 2022, up 58% from 71 in the same quarter as 2021 and the strongest second quarter rig count since 2017. During the quarter, 852 wells were drilled according to Geologic, up 49% from 571 in the second quarter of 2021 and the highest second quarter well count since 900 in 2018. The U.S. land rig count averaged 698 rigs in the second quarter of this year. In total, 81 land rigs were added with the largest increase coming from the Permian (up 30) and Eagle Ford (up 16).
US rig count is increasing


  • The worst performing commodity for the week was lumber, down 10.35%, as recession fears have tended to keep buyers on the sidelines with new home orders falling. World steel output fell 2.9% this month (-5.9% year-over-year) driven by weak China output (-3% this month and year-over-year) and the rest of the world down 3% this month (-9% year-over-year). America’s output was flat this month, but the European Union and the U.K. fell 3% this month (-12% year-over-year) as prices collapsed. India fell 3.4% this month (up 6% year-over-year) after the 15% export duty news in May, and Japan declined 4.6% this month (-8% year-over-year).
  • Following a strong decline in June, featuring hot-rolled and cold-rolled steel down 19% and 15%, respectively, steel prices have declined solidly so far in July, with hot-rolled and cold-rolled down 16% and 8%, versus June’s average prices.
  • Met coal prices fell sharply again this week with FOB Australia PLV down 13.4% and CFR China PLV down 9.0% this week. Met coal continued to tumble as demand remains weak in China. The price differential between thermal and met coal has led to high-volatile coking coal and semi-soft coking coal being sold in the market as a substitute for thermal. Supply increased 8% this week from Eastern Australian ports as weather conditions improved.


  • Morgan Stanley believes more supply is starting to come through in the lithium market and expects the market to remain tight through 2022, especially when considering restocking needs. The group forecasts China’s spot price to average $70,000 per ton in the second half of 2022. They still expect the lithium price to trend lower in 2023 as supply expands and market tightness eases.
  • Renewable stocks gained this week on the landmark climate deal reached by U.S. Senators Joe Manchin and Chuck Schumer. The deal buoyed companies from solar, wind, and nuclear power to fuel cells.  A total of $369 billion will go toward reducing carbon pollution and lowering Americans’ power bills.
  • Finland intends to construct and operate a national hydrogen transmission network and link this infrastructure to other countries in the Baltic Sea region. The initiative is intended to both reduce carbon emissions and enhance energy security as Finland pivots away from Russian natural gas. State-owned Gasgrid Finland, which has previously transported natural gas primarily from Russia, would build the network over the next several years. The network, which will take several years to complete, would consist of three hydrogen valleys, with two of them on the western coast near existing wind power infrastructure and one in southeastern Finland.


  • JPMorgan does not believe the risk of recession is factored in yet in the oil price, and that risk is growing. While historical evidence suggests that demand is well supported as long as global growth remains positive, the oil price tends to fall in all recessions by 30% to 40%. Under a 1.5% global growth scenario, global oil demand could grow by 0.6 mbd in 2023, 0.6 mbd below the current forecast, the bank explains. This slowdown in growth, without a concurrent cut to oil supplies, would result in a 1.4 mbd surplus on average in 2023.
  • The world’s largest chemical producer plans to cut the production of ammonia (a key ingredient in fertilizers) – meaning food shortages might worsen. Headquartered in Germany, BASF, the world’s largest chemical producer, has stated that it plans to cut ammonia production even further to cope with skyrocketing natural gas prices.
  • According to Goldman, the iron ore market is set to swing into significant surplus over the second half of this year. The bank now projects the market to be in a 67Mt surplus over the remainder of 2022 (versus 34Mt previously) after a 56Mt deficit in the first half. Crucially, this sharp swing into oversupply reflects a combination of both extended property-related onshore demand weakness and a sharp deceleration in ex-China steel demand, compounded by a largely unchanged supply path.


Blockchain and Digital Currencies


  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Optimism OP, rising 78.95%.
  • SEBA Bank AG, an online bank backed by Julius Baer Group that’s focused on digital assets, plans to more than double its headcount in Asia, despite the recent route in crypto assets. The bank is seeking to increase its staffing to more than 20 in Hong Kong and Singapore from about seven now, reports Bloomberg. 
  • Alternative digital currencies are outperforming Bitcoin after the Federal Reserve reiterated its commitment to combat inflation with another sizeable rate increase. Investors’ appetite for risk assets appears to have returned as the prices of so-called altcoins surged on Wednesday, Bloomberg explains. Ether was leading the pack, up nearly 11%.


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Huobi Token, down 7.55%.
  • Bitcoin sank to a more than one-week low, pummeled by investor skittishness ahead of a looming Federal Reserve interest-rate hike and amid harsher regulatory scrutiny of the cryptocurrency sector. The retreat has put a dent in expectations for a sustained Bitcoin rebound and returned the token to a trading range between roughly $19,000 and $22,000, writes Bloomberg. 
bitcoin is back down
  • Kraken, one of the world’s largest cryptocurrency exchanges, is under federal investigation, suspected of violating U.S. sanctions by allowing users in Iran and elsewhere to buy and sell digital tokens. Kraken would be the largest U.S. crypto firm to face an enforcement action from OFAC sanctions against Iran, which the United States imposed in 1979, according to an article published by Bloomberg.


  • Crypto platform Voyager Digital LLC said a joint offer proposed by FTX and Alameda is a “low-ball bid” that disrupts the bankruptcy process. Sam Bankman-Fried proposed a restructuring deal to Voyager publicly. Under the plan, Alameda, Bankman-Fried’s trading firm, would buy all of Voyager’s digital assets and digital asset loans in cash at market value. Meanwhile, his crypto exchange FTX would offer customers of Voyager an option to receive their share of claims by opening a new account at FTX, writes Bloomberg. 
  • Bitcoin and Ether are headed toward their best month since 2021 amid a revival of risk appetite in global markets and optimism about an Ethereum network upgrade. Bitcoin is up 26% in July and Ether up 65%, though their rallies paused on Friday, writes Bloomberg. 
  • Variant, a venture capital firm that invests in the cryptocurrency sector, said it raised $450 million for decentralized web projects. The company whose founders include former Andreessen Horowitz employees, said that $15 million will be dedicated to seed investments, according to a Bloomberg article.


  • Coinbase Global is facing a U.S. probe into whether it improperly let Americans trade digital assets that should have been registered as securities. The SEC’s scrutiny of Coinbase has increased since the platform expanded the number of tokens in which it offers trading, writes Bloomberg. 
  • Hackers are increasingly targeting financial firms such as banks and trading houses with attacks designed to use their computer systems to mine cryptocurrencies, according to cybersecurity firm SonicWall. The number of so-called crypto-jacking attacks on financial companies more than tripled in the first half from a year earlier. The overall number of such events rose 30% to 66.7 million, the report found. 
  • South Korea’s Financial Supervisory Service is probing $3.4 billion worth of “abnormal” foreign-exchange transactions at two of the country’s largest commercial banks for possible links to illegal crypto-related activities. Unusual transactions totaling 1.6 trillion won took place at five branches of Woori Bank between May 3, 2021, and June 9, 2022. Similar transactions worth 2.56 trillion won were detected at 11 branches of Shinhan Bank between February 23, 2021, and July 4, 2022, writes Bloomberg.


Gold Market

This week gold futures closed at $1,779.80, up $34.50 per ounce, or 1.98%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 3.09%. The S&P/TSX Venture Index came in up 6.26%. The U.S. Trade-Weighted Dollar fell 0.81%.

Date Event Survey Actual– Prior
Jul-25 Hong Kong Exports YoY -0.7% -6.4% -1.4
Jul-26 Conf. Board Consumer Confidence 97.0 95.7 98.4
Jul-26 New Home Sales 655k 590k 642k
Jul-27 Durable Goods Orders -0.4% 1.9% 0.8%
Jul-27 FOMC Rate Decision 2.50% 2.50% 1.75%
Jul-28 GDP Annualized QoQ 0.4% -0.9% -1.6%
Jul-28 Initial Jobless Claims 250k 256k 261k
Jul-29 Eurozone CPI Core YoY 3.9% 4.0% 3.7%
Jul-31 Caixin China PMI Mfg 51.5 51.7
Aug-1 ISM Manufacturing 52.0 53.0
Aug-3 Durable Goods Orders 1.9%
Aug-4 Initial Jobless Claims 260k 256k
Aug-5 Change in Nonfarm Payrolls 250k 372k


  • The best performing precious metal for the week was silver, up 8.88%, likely on short covering around the Federal Reserve hiking the borrowing cost. Gold climbed this week after the U.S. economy shrank for a second consecutive quarter, reports Bloomberg, pushing the dollar and Treasury yields lower. Bullion rallied as much as 1.2% to reach a three-week high after GDP fell 0.9%.
  • According to the World Gold Council’s second quarter Gold Demand Trends report, continued growth in the second quarter lifted first-half mine production 3% to 1,764 tonnes – making it a record first half for the group’s data series. Mine production benefited from an absence of COVID-related lockdowns, the report explains, and was also boosted by continued recovery in China following safety stoppages in 2021.
  • Agnico Eagle Mines reported strong financial and operating results for the second quarter of 2022 on Thursday. Highlights included record gold production along with strong earnings and cash flow generation. Payable gold production in the quarter was 858,170 ounces at production costs per ounce of $766, total cash costs per ounce of $726, and all-in sustaining costs per ounce of $1,026. Expected payable gold production in 2022 remains unchanged at between 3.2 and 3.4 million ounces.


  • The worst performing precious metal for the week was spot gold, but still up 1.98%. Shares of Newmont tumbled on Monday after the gold miner’s second-quarter earnings fell short of estimates, reports Barron’s. For Newmont, adjusted earnings per share of 46 cents came in below consensus of 65 cents. The miss was largely due to higher cost of sales, exploration, and G&A expenses. Management notes that earnings were negatively impacted by higher labor, materials and consumables costs of $80 million, higher fuel and energy costs of $50 million, and the $70 million expense recognized in the second quarter related to the Peñasquito profit-sharing agreement announced in early July.
  • Over the broad market selloff over the last few months, gold has managed to outperform nearly all other asset classes (except for the U.S. dollar) as a store of value. However, gold miner equities (as measured by the GDX ETF) have underperformed the underlying commodity by 25%. While a portion of this is due to some margin compression from input cost inflation, the group has also underperformed the S&P 500 by 22% (where almost all companies in this broad market index have also seen margin pressure from inflation).
  • SolGold is in discussions with major shareholders on possible financing options for its Cascabel Project in Ecuador. Initial capital costs of $2.7 billion to build a large copper mine presents a challenge and local communities near the proposed mining projects are gaining political support in some government agencies.


  • It is estimated that quant-oriented commodity trading advisors unwound nearly $100 billion of bearish stock-bond bets recently, helping the world’s biggest markets to recover from their worst half in history, according to Bloomberg. Nomura Holdings and JPMorgan noted that commodity trading advisors have offloaded big, short positions that were oriented around soaring inflation. The recent Federal Reserve commentary implies that they could perhaps reduce their pace of rate hikes due to recession risk. Nevertheless, the junior gold stocks have had a strong bid since the start off the month, with the GDXJ ETF up 5.06% while the GDX ETF is still off 4.05%.
  • GCM Mining Corp. agreed to buy all of the outstanding Aris Gold shares it doesn’t own to form a new company named Aris Gold Corporation. All outstanding Aris Gold shares not held by GCM will be exchanged at a ratio of 0.5 of a common share of GCM for each common share of Aris Gold. GCM and Aris Gold shareholders are expected to own, on a diluted in-the-money basis, approximately 74% and 26% of the combined group, respectively.
  • The India International Bullion Exchange has just launched, giving qualified jewelers the ability to directly import bullion. Current rules that require a bank-approved agency to act as an intermediary would be eliminated. India is the second biggest importer of gold. It is expected the new rules will be more transparent which allows for better pricing for the consumer.


  • According to RBC, the relationship between gold and the U.S. dollar is inversely correlated but has drifted a little in terms of correlation strength over time, (with current recent dollar strength driving material weakness in gold but periods in the past (2013-2019) where they were less correlated). One would likely need to see double-confirmation of peaking real interest rates and peaking/reversal in U.S. dollar strength for gold to start working to the upside. 
  • The greenback now stands at an all-time high, according to some measures, notes Bloomberg. Since mid-2021, the dollar has appreciated by 15% against a basket of currencies. Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore said, “There is no Kryptonite to blow up the dollar’s strength immediately, with the Eurozone hampered by the war in Ukraine and China’s growth uncertain.” With about 40% of global trade priced in dollars, consumers around the world are feeling the pain of a rising dollar. In the 1980s when the Fed last fought inflation, dollar strength eventually led to the Plaza Accord, an agreement that international policy makers cut to artificially rein in the greenback as they realized the possibility that further gains would convulse the global financial system and trigger other pain.
  • Despite bullish signals on Chinese demand, UBS expects the palladium price to slide through 2022. The bank cut its year-end price target by $200 to $1,700 an ounce on the prospect of a recession in the European Union and rate hikes by the Federal Reserve. “Robust imports are likely one reason why palladium has held up so well compared to other precious metals in recent weeks,” UBS wrote in a note. “Industrial demand will suffer from slower economic growth in Europe and in view of aggressive monetary policy tightening in the U.S.” 

Author: Frank Holmes

You can read the complete article at https://www.usfunds.com/resource/what-constitutes-a-recession-its-more-complicated-than-you-think/