We should be worried about the US economy slowing down

Vaseline4 weeks ago

0 2 minutes read

We should be worried about the US economy slowing down

To help you understand what’s happening in the economy and beyond, our highly experienced Kiplinger Letter team will keep you updated with the latest developments and forecasts (Get a free edition of the Kiplinger Letter or subscribe). You’ll get all the latest news by subscribing first, but we publish many (but not all) of our forecasts a few days later online. Here is the latest…

Growth is clearly slowing after a surge from the pandemic rebound, when consumers were flush with cash and spent it on everything from travel to home remodeling. Recent months have seen a decline in both hiring and job openings.

Commodity prices and bond yields retreated, two traditional signs that investors expect economic activity to slow. But recession seems unlikely at this point. Rather, we expect a return to normal – GDP expanding by around 2%, compared to the 3.1% level the economy has seen over the past four quarters. Given that population is growing slowly and productivity is not growing much faster, the potential rate of expansion of the economy in the long run is probably about 2%. We seem to be returning to this trend line now.

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Employment is down. But it’s still strong enough to keep unemployment low and match the growth of the working-age population. August’s 142,000 jobs look disappointing after a long stretch of higher monthly gains. But that’s roughly in line with pre-pandemic employment trends. The unemployment rate has risen since April, but that reflects an increase in the number of people who have started looking for work. Meanwhile, the average number of hours worked per week remained largely constant. And wages rose more than we expected, which bodes well for consumer spending (but also hurts employers and keeps inflation slightly higher).

None of this is to say that there aren’t problems and areas of weakness. Manufacturing remains in the doldrums with no turnaround in sight. Economic weakness overseas is hurting sales of American-made products. At home, consumers cut back on purchases of goods after breaking them down during COVID-19, when many services such as travel and meals were difficult or impossible to spend.

Home and car sales are down, suffering from a combination of high prices and high financing rates. Homes and cars are the biggest purchases most people will make in their financial lives. When these sales suffer, many related sectors and workers also lose business. The Federal Reserve’s upcoming interest rate cuts should ease the cost of financing a home or car a bit, but that’s not a silver bullet. And of course high prices still cause widespread pain. The inflation rate is falling, but after several years of rapid increases, many consumers are struggling.

If the outlook worsens, the labor market should be sending warning signals. Track the government’s weekly jobless claims. Lately they have risen, but only slightly, and remain low. If layoffs increase, then it will be time to worry.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on economic and business trends, as well as what to expect from Washington, to help you understand what’s ahead to get the most out of your investments and your money. Subscribe to the Kiplinger Letter.

Vaseline4 weeks ago

0 2 minutes read

Vaseline

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