U.S. economic picture unclear amid mixed data
The U.S. economy is showing both positive and negative signs amid an uncertain recovery from the COVID-19 pandemic. Some economists point to robust employment numbers, while others believe a recession looms.
Indeed, the past month has seen mounting signals that the hot economy is slowing. Reduced consumer spending suggests the ability of Americans to keep shelling out cash on vacations and restaurants is fading.
Housing activity is starting to feel the weight of rising interest rates, and investment in the tech sector, particularly startups, is drying up.
Consumer confidence hit its lowest level in U.S. history in June on skyrocketing inflation and dim views of the economy, according to the University of Michigan’s widely watched monthly Consumer Sentiment Index.
Inflation continued to be the primary concern of consumers, with 47 percent of the survey’s participants blaming high prices for a reduction in living standards, said Joanne Hsu, director of the University of Michigan’s Surveys of Consumers.
The housing market is beginning to crumble because of sharply increased mortgage rates, and exporters are having difficulty because of the strong dollar.
The U.S. consumer price index (CPI), a broad measure of everyday goods and services, skyrocketed a whopping 9.1 percent last month, the fastest annual clip since November 1981, according to the U.S. Bureau of Labor Statistics. June’s CPI rose from the previous four-decade high of 8.6 percent in May and is higher than the 8.8 percent increase forecast by Bloomberg.
In the latest sign of soaring inflation, the producer price index rose 11.3 percent from a year ago in June, near the record 11.6 percent posted in March, the Bureau of Labor Statistics reported Thursday.
Wells Fargo, a major U.S. bank, reported Thursday that the U.S. Federal Reserve is unlikely to see any signs of inflation coming down toward its target.
Some economists believe that an aggressive rate hike could be on the horizon by month’s end, including a 100 basis-point increase.
That would be larger than June’s 75 basis-point increase — already the biggest since 1994.
“A recession is more likely than not next year,” Wells Fargo said, noting the bank expects the United States to enter a mild downturn in the first quarter of 2023.
“The U.S. economy is now heading for a recession” due to the Fed being overly aggressive in its efforts to control inflation, Desmond Lachman, senior fellow at the American Enterprise Institute, told Xinhua.
In addition, the air is coming out of the stock market and bond market bubbles as the Fed raises interest rates and withdraws liquidity.
“That is bound to cast a further cloud over the economic outlook,” Lachman said.
One silver lining is record-low jobless numbers and abundant job openings. However, several companies have announced job cuts and hiring freezes over the past two weeks, ranging from JPMorgan Chase Bank to Redfin, an online real estate firm.
Data released Thursday by the Labor Department showed that initial jobless claims last week rose to 244,000, the highest level in eight months — the latest sign that the labor market might be cooling.
But other economists argue the economy remains in good shape.
Dean Baker, senior economist at the Center for Economic and Policy Research, told Xinhua that for most people, the economy is the state of the labor market, and that’s faring well. The unemployment rate has remained at 3.6 percent for the fourth consecutive month.
“The vast majority of people are able to get jobs and have the freedom to quit jobs they don’t like,” Baker said.
“The rapid run-up in prices is very bad news, but I think we are likely to see this turn around,” Baker said.
“We are getting the supply chain issues, that sent the price of a wide range of goods soaring, under control. Many of these items are likely to see falling prices in the months ahead,” Baker said, adding that soaring rents might also moderate in the next few months.
Brookings Institution Senior Fellow Barry Bosworth told Xinhua that despite low unemployment and an extraordinary number of unfilled jobs, product markets are also very stressed and vulnerable to shocks in various commodity markets.
Bosworth said that the situation should moderate over the next few months if a large supply shock can be avoided in the energy markets.
Meanwhile, the White House is feeling the brunt of Americans’ anger over soaring food and fuel costs, and U.S. President Joe Biden’s approval rating reflects that.
Biden’s approval rating stands at a dismal 38.6 percent, according to Real Clear Politics’ average of polls. That’s the lowest of any president at this point in his first term since the 1950s.