- Last week’s negative GDP printout exacerbated concerns about the recession, but other indicators are still strong.
- Labor market data shows that companies are still rapidly hiring and retaining their employees.
- Household finances are generally in good shape and Americans continue to spend a lot.
Last week’s GDP report painted a bleak picture of the economy, but many more indicators show the country is doing just fine.
While gross domestic product has contracted for two consecutive quarters, inflation is at a four-decade high and American economic sentiment is near record lows, it would be a mistake to ignore several other signs of resilience in the U.S. economy. . A handful of indicators, including those closely monitored by the National Bureau of Economic Research, the organization that calls recessions, show that the recovery continues vigorously in the second quarter, albeit at a slower pace than last year.
Consecutive quarters of negative growth are the rules of thumb for a technical recession, but NBER actually decides when the downturn starts, and the criteria are much stricter. The NBER Dating Commission defines an economic slump as “a significant decline in economic activity that spreads across the economy and lasts for more than a few months.”
It also looks at a handful of variables that provide a more holistic snapshot of the economy than GDP, and those indicators are all on healthy ground.
4 signs companies are hiring quickly and keeping workers close
Nearly every measure of the labor market shows that it is in a robust state.
Nonfarm payrolls – the most popular measure of total employment – is the latest indicator to give an encouraging signal. The US added 528,000 jobs in July, doubling its average forecast and expanding the historically strong wage creation it has seen in 2022.
The gains put the total number of jobs above its pre-pandemic high, signaling a full recovery from losses at the start of the pandemic. That recovery happened nearly three times faster than the recovery from the Great Recession, although the coronavirus recession saw the largest post-war job decline.
Unemployment also remains historically low. The measure fell to 3.5% in July, which corresponds to the five-decade low before the pandemic.
The unemployment rate is somewhat distorted by the fact that the employment rate remains low. The meter only tracks unemployed Americans who are actively looking for work, meaning those outside the workforce are not counted. As participation improves, unemployment margins may increase until those new job seekers find work.
Nevertheless, the low rate underlines an extraordinary tightness in the labor market.
Much of that tightness stems from the colossal gap between the demand for labor and the supply of workers. The number of job openings fell from 11.3 million to 10.7 million in June, suggesting that the labor shortage could ease. Still, the ratio of available employees to vacancies was 0.6, meaning that there were almost two vacancies for every job seeker. Companies don’t just hire people, they are desperately looking for employees.
Companies are also largely clinging to the employees they already have. The number of jobless claims rose to 260,000 in the week ending July 30. The print is slowly moving up that started in April but only places the claims slightly above the pre-pandemic average. The upward trend probably reflects the layoffs in the tech and construction sectors, which picked up at the beginning of the summer. However, other industries are still seeing fairly normal layoffs, meaning companies are not yet cutting their workforces in preparation for an economic downturn.
3 of the recession referees’ top meters are in the green
Americans’ finances are holding up well, even amid skyrocketing inflation. Real income minus transfers – which tracks inflation-adjusted income without government support such as stimulus measures and social security – is also well above pre-pandemic levels and is on an upward trend, albeit at a slower pace. The gains reflect that, despite rising prices and declining stimulus, households still have more wealth than before the pandemic recession started.
Americans also spend a lot. Real personal consumption expenditure, or inflation-adjusted spending, skyrocketed early in the pandemic as households received stimulus payments and shopped online through lockdowns. Inflation has somewhat dampened the rally, but spending remains at an all-time high as households pour more fuel into the economic engine.
Industrial production is also increasing and still gaining, signaling companies are not yet slowing down their production in anticipation of an economic downturn. The measure has shown the second best recovery in the four key metrics tracked by the NBER, and as supply chains recover and inventory bounces back, production is likely to improve further.
2 surveys of managers show strength in private sector companies
The struggles of private companies also hold up. The Institute for Supply Management’s Purchasing Managers’ Indexes – which track activity for manufacturers and service companies from the previous month – indicate expansion in the sector.
While growth has slowed in recent months, manufacturers have just registered a 26th consecutive month of growth. Inventories recovered faster during the month as supply chains recovered and corporate orders caught up with last year. Companies continued to hire at a healthy margin, with little sign of layoffs or employee freezes.
Some executives surveyed were concerned about a possible weakening of the economy, but sentiment generally remained optimistic as demand remained strong, Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said in Monday’s report.
Services also recovered in July, supported by significant gains in new orders, business activity and inventory sentiment. Deliveries to suppliers improved significantly, indicating that the economy is getting closer to balancing supply and demand.
The service sector’s measures “provide encouraging news about the state of the economy at the start of the second half,” Oren Klachkin, chief US economist at Oxford Economics, said in a note.
“The best days of the recovery are clearly visible in the rearview mirror, but this does not mean that an economic downturn has started,” he added.