2023-06-05 15:49:39
The prevailing belief among the heads of major companies and investors was that the US economy would head into recession in 2023; Because the Fed raises rates very quickly to curb inflation.
Many economists predicted that US companies would lay off their employees at a greater pace, and American consumers would cut spending due to their suffering from inflation.
This belief seemed to be collapsing at the moment, mainly because the great strength of the US labor market might prevent the economy from collapsing.
The pace of employment in America unexpectedly accelerated once more last month, as the economy added 339,000 jobs in May, which is more than the US economy added in any month in 2019, a very strong year for the labor market.
“This economy is incredibly resilient, despite all the shocks, the banking crisis, despite the interest rates, despite the debt ceiling,” Mark Zandi, chief economist at Moody’s Analytics, told CNN.
“Looking at the job numbers, it’s hard to see a recession this year,” he added, noting that many economists who predicted a recession are now backing away from that belief.
University of Michigan economics professor Justin Wolfers agreed with this view, telling CNN, “We are not in a recession. People have been telling us we are in a recession for the past two years. They were wrong.” He added, “The data is crystal clear on this matter.” There is no recession.
He continued, “We have never witnessed a recession when the labor market was going so strong. It would be absurd to use the word recession at a time when we are creating jobs at this rate.”
As RSM chief economist Joe Brosolas wrote in a report, “As long as the economy continues to add more than 200,000 jobs a month, it will not simply slip into recession.”
This latest optimism came a few months following Bank of America warned that jobs would start to shrink in early 2023, with regarding 175,000 jobs falling per month during the first quarter, and job losses continuing for most of the year.
Concerns still loom large
However, something might still happen to change this optimism in the coming months, there is a high risk of a recession in the medium term, as well as mounting evidence that consumers are suffering severely following two years of high inflation.
Despite strong employment in the United States, the labor market is sending mixed signals, and some companies are already cutting jobs, especially in the technology and media sectors.
According to the Challenger Job Cuts Index, the number of announced job cuts has quadrupled so far this year.
The other problem is that the fallout from the Fed’s war with inflation is slowly emerging, meaning that the full impact of interest rate hikes may not yet be felt.
In any case, it seems that the strong labor market will keep the economy away from recession this year, but the Federal Reserve’s continued tightening of its monetary policy may open the door for the economy to recession in the next 2024.
(Matt Egan-CNN).
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