U.S. Economic Downturn More Likely

Recent Policies are Set to Shake the Economic Underpinnings and Raise the Risks of a Downturn.

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Introduction

The economy has shown remarkable resilience over the past several years. Despite nearly double-digit inflation, and the rapid run-up in interest rates – the economy grew at relatively robust annualized rates. At the core of this performance has been consumer spending and labor market strength. Some of the economic strength can also be accrued to robust covid relief spending that takes a good bit of time to work its way through the system.  Altogether, real economic growth has averaged 3.5%, more than 4.8 million new jobs have been created, and unemployment has averaged 4% during the past two years.

Recent evidence suggests that the economy may be drifting to a slower growth path. Job growth is slowing. During the past two months it has averaged roughly 150,000 net new jobs monthly.  That is down from a level of 250,000 per month a year earlier.  While job numbers can be volatile, the trend leans toward further weakening.

There are also signs that the consumer is struggling under the weight of inflation. Some suggest that the growth in consumer income has outpaced the growth in inflation – leading to an improvement in spending power.  As a whole, earnings hae outpaced inflation – but not for everyone. 

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