Even a ‘Mild’ US Recession Comes With Steep Price in Lost Jobs

A new report from the Senate Small Business & Entrepreneurship Committee warns that if the United States defaults on its debt, small businesses will be the first to feel the impact. Interest rates are expected to rise, making loans from private lenders more expensive and less accessible, which could lead to an increase in loan defaults. 

Government-guaranteed loans, which are typically a more accessible option, could also become more difficult to obtain. The report estimates that loan defaults could overwhelm the Small Business Administration's budget, potentially leading to a decrease in banks' willingness to extend loans to small businesses. The stock market could also suffer, potentially falling by 45%, which could lead to a loss of savings for small business owners and entrepreneurs. Minority-owned businesses are expected to be hit the hardest in the event of a default, as they often operate on thin profit margins and have little safety net. The report

 Most Wall Street economists expect the US to fall into recession during the coming year. What does that mean for American workers?

Using the Jobs Calculator developed by the Federal Reserve Bank of Atlanta, combined with forecasts for peak unemployment, here’s a look at how job losses could accumulate. Among economists who expect a downturn, the average of 15 predictions suggests that the US economy will shed some 1.7 million jobs over the next year and a bit — roughly 120,000 a month.

Of course, every recession is different, with an impact that depends on lots of things including what caused it and how long it lasts. In some cases, unemployment reaches its highest point while the economy is still shrinking, and in others, the peak comes months after the downturn has officially ended. 

Forecasting if and when a recession will begin — and how high unemployment may rise as a result — is notoriously difficult. Economists still try. 

A word many of them are using at the moment to describe the expected downturn is “mild” — but even that scenario would involve hundreds of thousands of Americans, at a minimum, losing their jobs. Using the baseline assumptions in the Atlanta Fed’s model, unemployment at 4.2% or above in a year’s time will mean that monthly US payrolls have turned negative. 

Bank of America: BofA is predicting a recession beginning in the third quarter of this year, which causes the unemployment rate to rise to 4.7% in early 2024.

  • The implication? According to the Atlanta Fed’s Jobs Calculator, that would equate to roughly 97,000 net job losses each month until then — or some 1.1 million net jobs lost by the time of peak unemployment.

Deutsche Bank: The recession begins in the final months of this year; unemployment rises near 5.5% in the second quarter of 2024. 

  • 149,000 net job losses per month. Total: 2.1 million jobs
Was the Recession Bad? | The unemployment rate tends to peak near the end of or after the recession

UBS: Recession begins in the third quarter of this year; unemployment rises to 5.4% in mid-2024.

  • 137,000 net job losses per month. Total: 1.9 million jobs

Nationwide: The recession begins in the third quarter of this year; unemployment rises to 5.5% in the third quarter of 2024. 

  • 106,000 net job losses per month. Total: 1.8 million jobs

Jefferies: The recession begins in the third quarter of this year; unemployment rises to 6.5% in the third quarter of 2024.

  • 202,000 net job losses per month. Total: 3.4 million jobs

Federal Reserve: Chair Jerome Powell has indicated he thinks the US can skirt a downturn, but staff at the Fed expect a “mild recession” to begin later this year. The median projection among Fed board members and regional bank presidents in March was for unemployment to rise to 4.5% in the fourth quarter and remain elevated next year.

  • That would equate to roughly 128,000 job losses each month through the end of this year
  •  Debt limit talks between the White House and House Republicans stopped, started, and stopped again Friday at the U.S. Capitol, a dizzying series of events in high-stakes negotiations to avoid a potentially catastrophic federal default.

    President Joe Biden’s administration is reaching for a deal with Republicans led by House Speaker Kevin McCarthy as the nation faces a deadline as soon as June 1 to raise the country’s borrowing limit, now at $31 trillion, to keep paying the nation’s bills. Republicans are demanding steep spending cuts the Democrats oppose.

    Negotiations came to an abrupt standstill earlier in the day when McCarthy said it’s time to “pause” talks. But the negotiating teams convened again in the evening only to quickly call it quits for the night.

    The president, who has been in Japan attending the Group of Seven summit, had no immediate public comment. But White House press secretary Karine Jean-Pierre said Biden was “still optimistic” that a deal could be reached.

    “The president is confident there is a path forward,” said Jean-Pierre, but she acknowledged the difficulty of negotiations. “There’s no question we have serious differences.”

    Top Republican negotiators for McCarthy said after the evening session that they were uncertain about the next steps, though it’s likely discussions will resume over the weekend. The White House publicly expressed optimism that a resolution could be reached if parties negotiated in “good faith.”

    “We reengaged, had a very, very candid discussion, talking about where we are, talking about where things need to be, what’s reasonably acceptable,” said Rep. Garret Graves, R-La., a top McCarthy ally leading the talks for his side.

    Another Republican negotiator, Rep. Patrick McHenry of North Carolina, was asked if he was confident an agreement over budget issues could be reached with the White House. He replied, “No.”

    As the White House team left the nighttime session, counselor to the president Steve Ricchetti, who is leading talks for the Democrats, said he was hopeful. “We’re going to keep working,” he said.

    Biden had already planned to cut short the rest of his trip and is expected to return to Washington Sunday night.

    Earlier in the day, McCarthy said resolution to the standoff is “easy,” if only Biden’s team would agree to some spending cuts Republicans are demanding. The biggest impasse was over the fiscal 2024 top-line budget amount, according to a person briefed on the talks and granted anonymity to discuss them. Democrats staunchly oppose the steep reductions Republicans have put on the table as potentially harmful to Americans and are insisting that Republicans agree to tax hikes on the wealthy, in addition to spending cuts, to close the deficit.

    “We’ve got to get movement by the White House and we don’t have any movement yet,” McCarthy, R-Calif., told reporters at the Capitol. “So, yeah, we’ve got to pause.”

    White House communications director Ben LaBolt said Saturday that “Any serious budget negotiation must include discussion both of spending and of revenues, but Republicans have refused to discuss revenue.”

    He added: “President Biden will not accept a wishlist of extreme MAGA priorities that would punish the middle class and neediest Americans and set our economic progress back.”

    Jean-Pierre insisted Biden was not negotiating on raising the borrowing limit, despite the clear linkage in talks between securing a budget deal and raising the debt ceiling.

    “It is not negotiable — we should not be negotiating on the debt,” she said.

    Wall Street turned lower as negotiations came to a sudden halt. Experts have warned that even the threat of a debt default would spark a recession.

    Republicans argue the nation’s deficit spending needs to get under control, aiming to roll back spending to fiscal 2022 levels and restrict future growth. But Biden’s team is countering that the caps Republicans proposed in their House-passed bill would amount to 30% reductions in some programs if Defense and veterans are spared, according to a memo from the Office of Management and Budget.

    Any deal would need the support of both Republicans and Democrats to find approval in a divided Congress and be passed into law. Negotiators are eyeing a more narrow budget cap deal of a few years, rather than the decade-long caps Republicans initially wanted, and clawing back some $30 billion of unspent COVID-19 funds.

    Still up for debate are policy changes, including a framework for permitting reforms to speed the development of energy projects, as well as the Republican push to impose work requirements on government aid recipients that Biden has been open to but the House Democratic leader Hakeem Jeffries has said was a “nonstarter.”

    “Look, we can’t be spending more money next year,” McCarthy said at the Capitol. “We have to spend less than we spent the year before. It’s pretty easy.”

    McCarthy faces pressures from his hard-right flank to cut the strongest deal possible for Republicans, and he risks a threat to his leadership as speaker if he fails to deliver. Many House Republicans are unlikely to accept any deal with the White House.

    The internal political dynamics confronting the embattled McCarthy leave the Democrats skeptical about giving away too much to the Republicans and driving off the support they will need to pass any compromise through Congress.

    Biden is facing increased pushback from Democrats, particularly progressives, who argue the reductions will fall too heavily on domestic programs that Americans rely on.

    Some Democrats want Biden to invoke his authority under the 14th amendment to raise the debt ceiling on his own, an idea that raises legal questions and that the president has so far said he is not inclined to consider.

    Pressure on McCarthy comes from the conservative House Freedom Caucus, which said late Thursday there should be no further discussions until the Senate takes action on the House Republican plan. That bill approved last month would raise the debt limit into 2024 in exchange for spending caps and policy changes. Biden has said he would veto that Republican measure.

    In the Senate, which is controlled by majority Democrats, Republican leader Mitch McConnell has taken a backseat publicly, and is pushing Biden to strike a deal directly with McCarthy.

    “They are the only two who can reach an agreement,” McConnell said in a tweet. “It is past time for the White House to get serious. Time is of the essence.”

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