The takeaway from the range of labor market data is clear - the job market is cooling in a classic pattern that precedes recession. This suggests that the economy is experiencing a fundamental shift, characterized by a marked decline in private sector hiring and a significant drop in job creation averages. Coupled with an increasing unemployment rate and a normalization of layoffs, these signals indicate that we may soon face a recession, as history indicates similar conditions in past downturns.
Data released this week left us more certain that the US economy is headed at least into a substantial slowdown (and more likely a recession), but it is still uncertain as to how exactly the Fed will respond to the deteriorating outlook. The revisions to prior jobs reports have raised red flags, suggesting that previous payroll growth figures were overly optimistic, which compounds worries about the resumption of layoffs and sluggish consumer demand.
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