There's a lot of debate about whether the US economy is heading into a recession. But even if the National Bureau of Economic Research doesn't officially declare one, it's clear that we're in a period of major economic stress in the US, and globally especially. That being said, conditions are extremely different today compared to what they were during the Great Financial Crisis of 2008 and its aftermath.
Here are all the ways this time is different.
This one is pretty obvious. Inflation is at multi-decade highs almost everywhere you look. It's not just the US and the euro area. It's also places that are famous for their lack of inflation — such as Japan and Switzerland — that are now experiencing it.
The flipside of this is the robust labour market. In the US, the unemployment rate is 3.6%. Conversely, in the wake of the Great Financial Crisis, we had unemployment at 8% even as late as January of 2013.
Going back to Europe for a moment, a decade ago the story was that the German economy was booming, while the periphery was deeply troubled. This time around, the big story is the stress being placed on German industry thanks to surging energy prices and a scramble to replace costly Russian gas. In 2012, Germany had a monster trade surplus. Now it's in deficit.
It's not about the spread
Countries on the European periphery, like Italy, continue to pay a higher price to borrow money in the bond market than Germany. But thanks in part to the ECB, things remain tame compared to last decade. The Italian-German 10-year bond spread is much narrower than it was in 2012.
Consumer confidence is in terrible shape today. However, hard measures of consumer health are far better than basically any period during the last big downturn. Measures of consumer defaults started rising sharply in 2006 and 2007, leading into the financial crisis. They also stayed elevated for several years, even after the worst of it was over. Right now, we're still not seeing anything of the sort.
Of course, a big difference in the consumer picture comes from the housing. Home prices started slumping in early 2006, long before the big crash. These days we're seeing some weakness in housing, but so far the big national home price measures haven't started turning down.
Things > Money
It's implied in the name 'The Great Financial Crisis,' but 10 years ago, the world was plagued basically by a shortage of money, whether it was broke consumers or governments that couldn't meet financial obligations. These days, the stress is predominantly about a shortage of actual stuff — most prominently energy. One way to conceptualize this is that the Fed played an important role in stemming the stress last time by opening up swap lines with other countries in order to ease dollar liquidity stress. So far we see countries looking for fresh sources of gas and other commodities, rather than searching for money directly. A great way to see the new cross-border relationships is by looking at the price of natural gas in Europe vs. that in the US in the wake of an explosion at a US LNG export terminal. As soon as US output capacity became restricted, prices in Europe shot up, while those in the US tumbled. Energy sovereignty is the new monetary sovereignty.
Capital vs labour
Starting in spring of 2007, the unemployment rate in the US started to creep up, and then a few months later the S&P 500 hit its pre-GFC peak. This time around, the roles are reversed. Stocks have been in a slump for almost 8 months now, while the unemployment rate refuses to budge higher.
In the US, industrial production started falling off a cliff right at the beginning of 2008. This time around, it's still hitting new highs.
Wage gain distribution
Wage gains for lower-paid workers are far outstripping those of higher earnings according to the Atlanta Fed's wage growth tracker. This is very different from the post-2008 environment.
Whether the US or other parts of the world formally enter a recession or not is TBD. But regardless, this is a very different environment, with its own set of stresses and pressure points.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement