As the U.S. economy experiences a cooling labor market, concerns are rising that a recession may be on the horizon. Housing expert and journalist Lance Lambert recently shared data from the U.S. Bureau of Labor Statistics indicating a slowdown in labor force growth and an increase in unemployment over the past year. These are typically warning signs of an impending recession, according to Lambert.
Data compiled by Lambert for ResiClub revealed that the U.S. labor force grew by 1,316,000 in the past 12 months, while the number of unemployed workers increased by 1,259,000 during the same period. The latest figures from the U.S. Bureau of Labor Statistics showed that the unemployment rate rose to 4.3 percent in July, the highest level since October 2021. Additionally, the U.S. economy added only 114,000 jobs in July, marking the second-lowest monthly gain in over four years.
The Federal Reserve’s decision to maintain interest rates rather than implementing anticipated cuts further fueled concerns about the economy. Following these developments, the stock market experienced a sharp decline, with major indices like the Nasdaq, Dow Jones Industrial Average, and S&P 500 all posting losses. While the market has since stabilized, apprehension about a potential recession lingers.
Despite the signs of a cooling labor market, many experts believe that the current slowdown may align with a soft landing rather than a full-blown recession. Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management, noted that while rising unemployment rates historically continue to climb, the current rate in the low 4 percent range remains favorable. Federal Reserve Chair Jerome Powell also expressed confidence in the labor market changes, stating that they are consistent with a normalization process.
Some analysts, however, like financial expert Gary Shilling, are less optimistic about the economic outlook. Shilling, who accurately predicted the financial crisis of 2007-2009, believes that a recession is imminent. He pointed to leading indicators indexes, an inverted yield curve, the Fed’s reluctance to cut rates, and a slowing labor market as signs of an impending downturn.
While Morgan Stanley experts anticipate a soft landing and expect the Fed to cut interest rates multiple times in 2024, the conflicting opinions among economists and analysts highlight the uncertainty surrounding the U.S. economy’s future. As the situation continues to evolve, market participants and policymakers will closely monitor economic indicators to gauge the likelihood of a recession and determine the appropriate course of action.