- Last week’s negative GDP print worsened recession worries, but other indicators are still strong.
- Labor market data reveals companies are still hiring fast and retaining their workers.
- Household finances are generally in good shape, and Americans continue to spend big.
Last week’s GDP report painted a gloomy picture of the economy — but far more indicators show the country to be performing just fine.
Though gross domestic product shrank for two consecutive quarters, inflation is at four-decade highs, and Americans’ economic sentiments near record lows, it would be a mistake to ignore several other signs of resilience in the US economy. A handful of indicators — including those closely tracked by the National Bureau of Economic Research, the very organization that calls recessions — show the recovery running strong through the second quarter, albeit at a slower pace than last year.
Consecutive quarters of negative growth are the rule-of-thumb criteria for a technical recession, but NBER actually decides when downturns begin, and its criteria are far more stringent. The NBER’s dating committee defines an economic slump as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
It also looks at a handful of variables that give a more holistic snapshot of the economy than GDP, and those indicators are all in healthy territory.
4 signs that businesses are hiring fast and keeping workers around
Nearly every measure of the labor market shows it to be in robust condition.
Nonfarm payrolls — the most popular measure of overall employment — is the latest indicator to flash an encouraging signal. The US added 528,000 jobs in July, doubling the average forecast and extending the historically strong payroll creation it’s seen throughout 2022.
The gain places total jobs above the pre-pandemic high, signaling a complete rebound from the losses seen early in the pandemic. That recovery happened nearly three times faster than the rebound from the Great Recession, even though the coronavirus recession featured the largest post-war drop in employment.
Unemployment remains historically low as well. The measure fell to 3.5% in July, matching the five-decade low seen before the pandemic.
The unemployment rate is somewhat skewed by the fact that labor force participation remains subdued. The gauge only tracks jobless Americans who are actively looking for work, meaning those outside the labor force aren’t counted. As participation improves, it’s possible unemployment edges higher until those new job seekers find work.
Still, the low rate underscores an extraordinary tightness in the labor market.
Much of that tightness comes from the colossal gap between labor demand and worker supply. Job openings slid to 10.7 million in June from 11.3 million, hinting the labor shortage could be easing up. Yet the ratio of available workers to openings was 0.6, meaning there were nearly two openings for every job seeker. Businesses aren’t just hiring, they’re desperate for workers.
Firms are largely holding on to the employees they already have, too. Jobless claims rose to 260,000 in the week that ended July 30. The print extends a slow crawl upward that began in April, yet only places claims slightly above the pre-pandemic average. The uptrend likely reflects layoffs in the tech and construction sectors, which picked up at the start of the summer. Other industries, however, still show fairly normal layoff rates, signaling companies aren’t yet trimming their workforce in preparation for an economic downturn.
3 of the recession referees’ top gauges are in the green
Americans’ finances are holding up well even amid sky-high inflation. Real income less transfers — which tracks inflation-adjusted income without government support like stimulus checks and Social Security — is also well above pre-pandemic levels and trending higher, albeit at a slower pace. The gains reflect that, despite surging prices and dwindling stimulus, households still have more wealth than they did before the pandemic recession began.
Americans are spending big, too. Real personal consumption expenditures, or inflation-adjusted spending, skyrocketed early in the pandemic as households received stimulus payments and shopped online through lockdowns. Inflation has dented the rally slightly, but spending remains historically elevated as households pour more fuel into the economic engine.
Industrial production is also up and still gaining, signaling companies aren’t yet slowing their output in anticipation of an economic downturn. The measure has shown the second-best recovery of the four main metrics tracked by the NBER, and as supply chains heal and inventory rebounds, production is likely to improve further.
2 manager surveys show strength in private-sector businesses
Measures of strength among private businesses are holding up as well. The Institute for Supply Management’s purchasing managers’ indexes — which tracks activity for manufacturers and service businesses relative to the prior month — indicate industry expansion.
While growth has moderated in recent months, manufacturers just notched a 26th consecutive month of growth. Inventories rebounded faster through the month as supply chains healed and firms’ orders caught up with last year’s backlogs. Companies continued to hire at a healthy clip, and there were few signs of layoffs or headcount freezes.
Some surveyed managers cited concerns around a potential softening of the economy, but sentiment remained optimistic overall as demand remained strong, Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee, said in the Monday report.
Services also rebounded through July, lifted by sizeable gains in new orders, business activity, and inventory sentiment. Supplier deliveries improved significantly, signaling the economy is creeping closer to balancing supply with demand.
The service-industry measures “offer encouraging news about the state of the economy at the beginning of the second half,” Oren Klachkin, lead US economist at Oxford Economics, said in a note.
“The recovery’s best days are clearly in the rear-view mirror, but this doesn’t mean an economic downturn has begun,” he added.