March/Early April 2022 Economic Outlook

Dr. Timothy Nash

Director, The McNair Center

Dr. Timothy Nash
April 18, 2022

March/Early April 2022 Economic Outlook

Milton Friedman argued, “inflation is always and everywhere a monetary phenomenon that is produced only by a more rapid increase in the quantity of money than output (goods, services, and/or assets).”
Key March / Early April Data
Positive and Negative Signs
The Standard and Poor’s 500, Dow Jones Industrial Average and NASDAQ have all finished down since April 1, while West Texas Intermediate Crude was down in mid-April from its March high, trading at 106.54. The 10-Year Treasury Bond Yield closed Friday at almost 2.83%, a near 3-year high, with the 30-year fixed home mortgage interest rate closing at 5% for March, up roughly 60% since the beginning of the year. Finally, the University of Michigan’s Consumer Sentiment Survey was up slightly in March, but still dramatically below its all-time high.

Current Issues
Milton Friedman was awarded the Nobel Prize in Economics in 1976 for his path-breaking work on monetary policy, inflation, and the business cycle. Dr. Friedman established a strong correlation between erratic and excessive government monetary policy, its over-stimulation of the economy and the subsequent recessions or depressions that have followed in the United States.
Current U.S. monetary policy has taken consumer price inflation from 1.4% on an annualized basis in January 2021 when President Biden was elected to 8.5% on an annualized basis at the end of March 2022. If you extrapolate the March monthly consumer inflation rate of 1.2% over 12 months, the yearly inflation rate would be 14.4%. Historically, inflation rates at this level have only been brought under control by economic recession or depression.
Excessive inflation plus the following three indicators lead us to believe a recession is on the horizon for the U.S. economy over the next 12 to 18 months.
1. Inverted Yield Curve
An inverted yield curve has been a precursor for each recession since 1955, with only one exception to that rule. The two-year treasury rate of 2.337% inverted to the 10-year treasury rate of 2.331% on April 1, 2022. This last happened in 2019 and then the U.S. entered a recession in 2020. The five-year treasury rate of 2.56% inverted to the 30-year treasury rate of 2.55% on March 28, 2022. This inversion last happened in 2006. The FED is ramping up short-term interest rates to curb rampaging inflation, which stood at 8.5% at the end of March 2022. A major factor to watch is the impact of higher short-term rates on bank lending and consumer borrowing. This double-edged sword could push the country toward a recession as banks pull back from lending due to lower yields on loans while pushing up short-term rates for consumers who need to use more of their discretionary income on debt service.
2. The “Rule of 4%”
Noted Neo-Keynesian economist and former U. S. Treasury Secretary Larry Summers has been one of the few well-known economists friendly to the Biden Administration that has argued for more than a year that inflation is non-transitory and is the creation of excessive government spending and expansionary monetary policy. Summers’ research has also pointed out that 100% of the time since the end of World War II, when the U.S. Consumer Inflation Rate rises above 4% and the U. S. unemployment rate falls below 4%, the over-stimulation of the U. S. economy has been the result as well as a recession within two years. The “Rule of 4%” recently took place when the U.S. unemployment rate dipped below 4% in December 2021 with inflation above 4% simultaneously.
3. Used Car Prices as a leading indicator of recession
Former U.S. Federal Reserve Chairman Alan Greenspan used to argue falling general U.S. used car prices would directly or shortly thereafter be accompanied by reduced sales of used cars. He noted this correlation would occur during high inflationary periods when inflation increased faster than wages, resulting in a decline in real incomes. When this occurs, consumers have reduced purchasing power and are worse off economically. The result is the slowing economy and eventually a recession or depression. Prior to March, U.S. used car prices were up roughly 40% on an annualized basis. However, in March 2022, used car prices were down 3.8%, according to the U.S. Bureau of Labor Statistics, while sales of used cars less than 10 years old were down 27% compared to March 2021. Buyers of used cars are now taking 171 days to shop compared with 89 days in March 2021. The recent Fed policy change to raising interest rates will have multiple impacts on the economy. Rising interest rates should slow down the economy as the cost of financing homes and automobiles and other large ticket items will be more costly. This is evident as noted in the slowing of used car sales and the sharp increase in mortgage rates from below 3% for 30-year mortgages to touching 5% in mid-April.

In addition to the above-noted data, the U.S. Producer Price Index (PPI) for March registered its highest level in its 12-year history at 11.2% (trailing 12-month growth), with a forward-looking annualized rate of 16.8%. The previous data is exacerbated by the fact that the Federal Reserve GDP Now estimator produced by the Atlanta Federal Reserve Bank is calling for a GDP growth rate of only 1.1% for the U.S. economy in the first quarter of 2022, which is much more optimistic than Goldman Sachs, which is calling for only 0.5% growth in Q1 2022. Former Trump Administration Chair of the President’s Council of Economic Advisors Dr. Kevin Hassett, using a similar analysis to Alan Greenspan’s on declining new and used car sales in March, believes the U.S. economy may already be in recession or certainly heading in that direction. Finally, we are holding to our earlier prediction that there is a 60% chance the U.S. economy will be in recession by the end of the summer of 2023, if not sooner.

Contact Us
Comments or questions should be directed to Dr. Timothy G. Nash at The NU Outlook is a monthly publication of The McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. This month’s publication was co-authored by Nash and McNair Center Scholar Professor James Hop. To view Northwood University’s Monthly Economic Outlook Newsletters from previous months, visit For more information about Northwood University, our academic programs and enrollment opportunities for students, visit

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