The alarm bells for an economic downturn are clanging
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Illustration: Annelise Capossela/Axios
This time two years ago, seemingly every economist worth their salt was predicting a recession was imminent. They were wrong then. But that doesn't mean we're out of the woods now.
The big picture: There have been a series of subtle, but worrying, signs in economic data over the last several weeks that show cracks in what has been a robust post-pandemic expansion.
- The July jobs numbers, out Friday, were the least subtle and most worrying of them all.
- The unemployment rate has now risen nearly a full percentage point from its modern low (4.3% in July, versus 3.4% in April 2023), and job growth had decelerated substantially.
Between the lines: There is a bit of a "boy who cried recession" phenomenon now, in which the fact that many forecasters made incorrect recession predictions two years ago is fueling complacency about the possibility that a serious downturn will arrive soon.
- The big question now is whether the interest rate cuts that the Fed is nearly certain to commence at its mid-September policy meeting will be enough to arrest the emerging economic weakening before it goes too far.
To be clear, the economy is not in recession right now.
- Employers added 114,000 jobs in July, GDP grew at a 2.8% annual rate last quarter, and the jobless rate is still only 4.3%, lower than in any month between June 2001 and May 2017.
Yes, but: The historical track record is clear. When the jobless rate rises as much as it has this year (from 3.7% in January to 4.3% in July) it rarely levels off, and more likely signals a tumble into recession.
- Other economic data and anecdotal reports from major companies have been flashing warning signs of economic troubles ahead in recent weeks.
What they're saying: The situation is clear in a series of quotes from unnamed respondents to the Institute for Supply Management's monthly survey of manufacturers released Thursday, that showed significant contraction in business activity.
- "It seems that the economy is slowing down significantly," said a machinery manufacturer. "Some markets that are usually unwavering are showing weakness," said one in mineral products.
- "Sales are lighter, and customer orders are coming in under forecasts. It seems consumers are starting to pull back on spending," said a firm in food, beverage and tobacco products.
The bottom line: The U.S. economy is on solid footing for the moment, but alarm bells for the future are clanging.
