Talk of the US entering recession has been swirling around him For at least a year nowas the Fed’s campaign to raise interest rates to combat persistent inflation hurts aggregate demand and investment.
So far, a full economic downturn has not been achieved.
And on Friday, the Bureau of Labor Statistics released jobs data that confirmed that until at least last month, the recession had not resolved: The US economy added 236,000 jobs in March and the unemployment rate fell from 3.6% to 3.5%.
It was the weakest monthly job gain in the post-pandemic period.
As a result, there are still mixed messages from experts about the direction of the economy.
In a Friday note to clients titled “Calm Before the Recession,” Pantheon chief economist Ian Shepherdson noted that Friday’s jobs data may finally be the last glimpse of the world before Silicon Valley’s bank implosion. The tightening of credit and the financial conditions that may occur in their aftermath could push the economy into a lower or even regression growth pattern.
“The March data is an effective look at a pre-SVB world,” Shepherdson wrote, referring to the Silicon Valley bank and noting that one of the surveys the BLS used to create its latest jobs report was taken a week before the bank failed.
Shepherdson said Unemployment claims rose on Thursdayin addition to a decrease in employment intentions over the next three months among participants in a Small business benchmark surveysignals that job gains could start to turn negative by summer.
“The blow from the tightening of credit conditions is coming,” Shepherdson said.
Not everyone agrees. The main takeaway from Friday’s jobs report by Michael Antonelli, managing director and market strategist at Baird Financial Services Group, is simple.
In which direction is the economy heading?
“It’s fine,” Antonelli said. Right now, he said, the markets find themselves unsure of the next direction because there is still no convincing case to be strongly bullish or bearish.
It’s a view confirmed by a March 31 Gallup poll Economic confidence has been drifting mostly sideways since the fall.
But Antonelli noted that the US economy added nearly a million jobs in the first quarter of the year.
“This is inconsistent with a recession,” he said.
Antonelli also pointed to another data point that is showing signs of life: home prices. After a months-long slump caused by rising mortgage rates, a report this week from Black Knight, a real estate analytics firm, showed home prices rose in February for the first time after seven consecutive month-over-month price declines.
“In many areas of the country… declining inventory and a modest rise in demand… have driven up home prices,” said Black Knight vice president of institutional research Andy Walden. he said in a statement. He said that 39 of the 50 largest real estate markets in the United States saw prices rise in February compared to three months earlier, when 48 of those 50 regions were seeing prices fall.
“The buying market increased when interest rates fell in the early part of the month and borrowers rushed to take advantage of the limited inventory,” Walden said.
Of course, continued increases in home prices, driven by continued declining inventory, will continue to complicate the affordability of homebuyers.
But given the importance of home prices to the financial well-being of families who already own their homes, Antonelli said, other aspects of the economy are expected to hold up.
“If you were comfortable with where your home value was going, you would still go out and buy egg bites at Costco, and go on vacation,” Antonelli said.
He said the significant deterioration in the labor market will begin to put pressure on housing prices, adding, “We haven’t seen any of that yet.”
The job market has weathered a year of rapid interest rate increases from the Federal Reserve, which risked laying off employees as high borrowing costs squeezed business.
With the unemployment rate still hovering near historic 50-year lows, inflation has fallen — from the 9.1% annual pace seen last summer to 6.0% as of February. March inflation figures are expected on Wednesday.
So if some economists appear to be on the defensive waiting for the next shoe to drop, it is best to remember that an economy the size of the United States is a very complex machine. The Fed has made it clear that it will do whatever is necessary to bring inflation down to the desired rate of 2%.
Maneuvering this economy is a delicate task, and more rate hikes may be on the table, Citi economists wrote in a note on Friday.
They said the latest data “points to a labor market that remains very tight,” meaning there are more jobs than labor available to fill them.
This could prompt the Fed to remain resolute in its efforts to keep inflation – which has been on a downward trajectory since June – from creeping up again.