"When describing the health of the US economy, there is a temptation among economists, market analysts, and politicians to argue that the only true picture of our current situation is a sweeping portrait - only by looking at the broadest of aggregate statistics can you determine the state of play, they argue. But the wide view can ignore important developments unfolding under the surface. Sometimes, even the healthiest-looking person might have high cholesterol."
"Right now, the economy seems OK on the surface. GDP growth has been running north of 3% for the last two quarters. In the labor market, the boilerplate appears to be that conditions are gradually cooling, but nothing more, nothing less. For example, despite the slowdown in new hiring, the unemployment rate of 4.4% is still low by historical standards."
Surface macro indicators such as GDP and unemployment currently mask growing vulnerabilities in specific sectors. GDP growth exceeded 3% in the last two quarters while unemployment remains near 4.4%, yet major employers in homebuilding and restaurants are showing signs of strain. Relying solely on aggregate data risks missing early warnings because downturns often shift nonlinearly into abrupt, self-reinforcing feedback loops rather than gradual, linear deterioration. Monitoring sector- and industry-level conditions provides a forward-looking signal of economic trajectory and a clearer gauge of recession risk than headline averages alone.
Read at Business Insider
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