Statistics are mixed, but the economy can be said to be weak

If you listen to the White House, you hear that the economy is doing well. Others will say it is already in recession. Such “analytical” differences are almost always common, and most often reflect the political agenda of the speaker rather than a direct reading of the statistical evidence. Things seem more murky these days. Statistics provide ammunition for both views. The President can and does point to strong growth in labor costs. A less optimistic person can point out that the country’s real Gross Domestic Product (GDP) has fallen for two consecutive quarters. While the balance of evidence clearly points to a weakening economy, we also admit that the statistics paint a strangely complicated picture.

The Labor Department’s monthly employment report shows it. On the positive side, the July Employers Survey showed a remarkable increase in the number of jobs he added by 528,000. Private payroll increased by 471,000 positions. While these are not record increases, they nonetheless exceed most historical experience and far exceed consensus expectations. employment increased by only 179,000. This tells a completely different story than the tally of employers. Not only was the increase in employment much smaller, but it was insufficient to overcome June’s decline in employment, so in the two months of June and his July, the measure saved the country about 136,000 jobs. reduced employment.

Despite this contrast, which the Labor Department has yet to explain, what is tipping the balance in the negative direction is the flow of information from elsewhere and information from the department’s remaining monthly reports. Flow. Indeed, the unemployment rate has fallen slightly from 3.6% of the workforce in June to 3.5% in July, but the ministry also said that about 538,000 people in the workforce were out of work in July. reported to have dropped out of The move more than explains the drop in unemployment, as they are not working or looking for work. Additionally, his average weekly hours worked remained unchanged in July at 34.6 hours, still down from his April reading.

Outside of the Labor Department accounting, of course, there was a decline in real GDP in the first and second quarters, a sharp drop in consumer confidence, and an overall slowdown in new orders, according to a report by the Institute for Supply Management (ISM). There is a complete reduction in portions. major. Of course, this negative list isn’t exhaustive, but it’s nonetheless thought-provoking.

Aside from current statistics pointing to economic decline, two other considerations weigh heavily on the economic outlook. One is ongoing inflation. At its last measurement in June, the Consumer Price Index (CPI) rose 9.1% from a year earlier. This kind of price pressure seems likely to last for a long time. Even as low as 8% or 7%, it would still be enough to undermine growth prospects by undermining business and consumer confidence and discouraging savings and investment on which economic growth ultimately depends. is. These effects alone could lead to a recession. It certainly wouldn’t be the first time in history that inflation has caused this.

An even stronger recession threat stems from the Federal Reserve’s (Fed) fight against inflation. The Fed launched this initiative last March. Before that, it pursued a monetary policy that encouraged inflation. It kept short-term interest rates near zero and pumped fresh money into the financial markets to buy bonds (mainly government bonds and mortgages) directly. The Fed calls this “quantitative easing.” However, since the policy shift in March, the Fed has been draining money from financial markets by selling previously acquired bonds and raising short-term interest rates by about 1.75 percentage points. These are standard anti-inflationary moves, but they also curb economic activity. Moreover, the Fed appears determined to take further steps along these lines in the coming weeks and months. This is a pattern that makes a recession even more likely.

If this assessment is correct, which seems likely, the statistics that optimists rely on, including the White House, will turn negative in the coming months. The evidence of a weakening economy, if not a full recession, would be overwhelming. It remains uncertain whether this resolution of the economic situation will take place in the next month or two, but the ambiguity is unlikely to persist for very long.