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Texas This Week: Economist Ray Perryman on if the US is headed for recession

Perryman said he believes job growth across the country is keeping the U.S. out of a recession.

AUSTIN, Texas — In this week's edition of Texas This Week, Central Texas economist Ray Perryman, Ph.D., weighs in on the state of the economy and if the U.S. is headed toward a recession.

Three things to know in Texas politics

1. Texas abortion ban to go into effect Aug. 25

The Texas law banning nearly all abortions will go into effect on Aug. 25. On Tuesday, the U.S. Supreme Court issued its judgment in Dobbs v. Jackson, the Mississippi case overturning a woman's right to access abortion health care by sending the decision back down to the states. The judgment started the 30-day clock for the Texas law to go into effect. Starting on Aug. 25, performing an abortion will be a first-degree felony unless a woman's life is in danger. The law makes no exception for cases of rape, incest, severe fetal abnormalities or women who express intent to do self-harm. In an advisory, Texas Attorney General Ken Paxton said his office stands ready to help any local prosecutor pursue criminal charges according to the law. 


2. Robb Elementary School principal reinstated

As families in Uvalde continue to call for accountability after a gunman shot and killed 19 students and two teachers at Robb Elementary School, the principal of the school was placed on leave then reinstated this week. Mandy Gutierrez was placed on paid administrative leave on Monday. Gutierrez has come under scrutiny after a House Committee report detailing the shooting revealed staff at Robb Elementary had a culture of complacency about security, and broken locks were not fixed. Gutierrez refuted those claims in a letter to the committee, writing a custodian checked all classroom locks every night. The next day, her attorney shared a letter from the superintendent saying she can resume her duties as principal. Meanwhile, the school board and Uvalde City Council both voted to send resolutions to Gov. Greg Abbott asking him to call a special session to raise the age to buy an assault-style rifle from 18 to 21. In an interview with KVUE's sister station in Houston, Gov. Abbott wouldn't say if he will or won't call a special session.


3. Lt. Gov. Dan Patrick tests negative for COVID-19

Lt. Gov. Dan Patrick is no longer testing positive for COVID-19. According to his campaign, he tested positive last Saturday and had mild symptoms. On Friday, the campaign shared Patrick tested negative and is symptom-free.

Economist Ray Perryman, Ph.D.: US is not in a recession

This week the GDP, gross domestic product, shrunk for the second quarter in a row. By standard definition, that negative growth of the U.S. economy signals a recession. But some economists say that's not the case for the U.S. in this moment.

Ray Perryman, Ph.D., economist, president and CEO of economic research and analysis firm The Perryman Group, joined KVUE to explain why.

Ashley Goudeau: This week there has been a lot of talk about the big R word. The head of the Federal Reserve says the U.S. is not in a recession, at least not yet. The White House echoed that message that we are not in a recession, but some Republican politicians, including Gov. Greg Abbott, say we are. You are an expert with more than 40 years of experience on this. What do you say?  

Ray Perryman, Ph.D.: "I really don't think we are. We saw the numbers this morning. The gross domestic product is now, has now declined two straight quarters, which is one definition people use sometimes. But the previous quarter was primarily because we were unloading some boats. We got our imports back up and solved some supply chain problems. You're really not in a recession when you're gaining 400,000 jobs a month. And so I think certainly we're having a lot of headwinds in the economy. There are a lot of challenges right now. From an individual perspective in your own life, it doesn't matter if you call it a recession or not. But we're not seeing the types of things you typically see in a recession economy at this point in time."  

Ashley Goudeau: You know, one of the things that you said is one of the key reasons why the Fed says we're not in a recession, that's the job market, right? The unemployment rate in the U.S. is near a 50-year low. Wages are growing, businesses are hiring. So how big of a factor does job growth play into the recession equation?  

Ray Perryman, Ph.D.: "Well, it's very important because basically the question in a recession is, are you growing or not? If the economy continues to hire several, several hundred-thousand people every month, it's still in the growth mode. Now, we're facing a lot of headwinds: inflation challenges, supply chain challenges, many other things. Households are having to deal with these things. But underneath all of that, there's also some indicators that we continue to grow."  

Ashley Goudeau: Yeah. So a lot of economists, though, are still warning that a recession is probably coming either later this year or in 2023. In your opinion, tell us what would really signal a recession.

Ray Perryman, Ph.D.: "Well, to me, what we'd see is some of the things we're seeing now in addition to some weakness in the job market. We'd probably see consumer spending falling. It's still rising modestly right now. There'd be a basically a confluence of things that are all going down at the same time, spreading across a large span of industries. And we're simply not seeing that at this point in time. We may or may not see the future. Personally, I think we will avoid a recession, certainly will avoid a severe recession. But we are facing a lot of challenges in the economy right now that are bringing some hardship for a lot of folks."

Ashley Goudeau: Earlier this week, the Fed decided to increase interest rates again to try to combat our record high inflation. Now, raising interest rates is supposed to deter people from borrowing money, slowing demand so that those prices fall. But in Texas, we're still seeing record spending, so much spending that the comptroller had to revise his revenue estimate, increasing it by $14 billion. So explain to us again, make it make sense, Dr. Perryman, how does raising rates help?  

Ray Perryman, Ph.D.: "Sure. Well, raising rates basically raises the cost of borrowing money initially, just in some, in a fairly limited area where the Federal Reserve controls. But beyond that, it makes its way into mortgage rates to some extent. It makes its way into credit card rates. The prime rate at banks, it effects lending rates for a lot of companies. A lot of other loans are tied to the prime rate. So it does have a lot of impact there. What we're seeing in Texas is a lot of underlying strength in our economy, but also a big part of the comptroller's increase in the revenue, which is very welcome for Texas, is what's happening in the oil and gas industry because that's generating a tremendous amount of service tax revenue, sales tax revenue, many other types of revenue that come into play, the franchise tax revenue. All of that is being driven by some real underlying strength in the oil and gas sector, which allows Texas a little bit of cushion that some states don't have."

Ashley Goudeau: Folks are feeling it at home. And so whether you say we're in a recession or not in a recession, headed to one or not, people at home say, 'I'm having to pay, you know, almost double for some of the products.' Is that going to correct itself?  

Ray Perryman, Ph.D.: "Well, again, to some extent it will. We are I think by the end of year, you'll see inflation being a lot lower in the U.S. right now. In some cases you'll actually see prices falling from the levels we've seen recently. Things like used cars that were terrifically inflated by the situation where we couldn't get chips in to make new cars, those kinds of things, I think you will see a lot better situation with inflation in a few months than you're seeing right now. And I think for most people right now, I mean, as you pointed out, we're pretty close to full employment. Most people that want a job have a job. Wages are going up. The real thing that's hitting people right now is not the traditional things you have in a recession, but it's the inflationary hit. It's the fact that the things you buy every month are costing more. And consequently, that forces you to make some decisions that you wouldn't have to make otherwise. I think that's the issue that's probably confronting most households and consumers more so than than the underlying economy in terms of whether or not we're in a recession."

Ashley Goudeau: In your opinion, what really is the state of our economy, both for Texas and for the United States right now?  

Ray Perryman, Ph.D.: "Well, at this point in time, again, I think there's some underlying factors that look strong, like we can move forward in a productive way. Growth [is] slowing, certainly, but [we're] not seeing a big decline in jobs or anything of that nature. Texas is doing a little better than the country as a whole, but both the U.S. economy and the Texas economy are facing the headwinds. The inflation we're having is very important. Now, an important distinction for people to make is that everybody wants to compare this to the '70s and '80s, I was actually an economist even back then. And this one is not structural. That is, we haven't institutionalized this inflation like we did back in those days. This is one that is tied by a crazy set of circumstances coming into play at once: coming out of a pandemic, a lot of extra money in people's pockets, supply chain challenges trying to get started, the war in Ukraine disrupting things, China shutting down production again. I mean, we really had a perfect storm of things that generate this inflation, but they're all the kinds of things that get fixed over time without having to make big structural changes in the economy."

Click here to learn more about Perryman and find a link to his latest publications.

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