Is the US Economy Collapsing?

Inflation remains high, and the NBER predicts a recession in 2023. While the economy has recovered since the 2008 crisis, most of the recovery has gone to the rich. Here are the main indicators that show that the US economy is still in good shape: Housing and the auto industries remain strong. Manufacturing activity is up, despite order backlogs, and the labor market is tight. The ratio of new job openings to unemployment is near record levels, which suggests that companies may delay layoffs.

NBER predicts a recession in 2023

According to the National Bureau of Economic Research, a recession is an economic slowdown lasting longer than six months. The next US recession is expected to start in 2023, a time when the US economy is likely to contract for at least two quarters. Although the financial press is constantly discussing the possibility of a recession, it is important to note that we are not yet in recession territory.

There is some cause for concern. While many economists believe that the US is not in a recession right now, the number of economists who believe the country will be in a recession is rising. The cost of gas and food has risen due to the Russian invasion of Ukraine, so inflation is likely to continue. While the NBER believes that the US economy is not yet in recession, it is important to remember that the cost of gas and food will continue to rise.

It’s hard to tell when a recession will start, but there are some common signs. The standard definition of a recession is two consecutive quarters of negative growth in the gross domestic product. There are various indicators that the NBER uses to make this determination, including unemployment and wages. Other indicators include declines in wholesale-retail trade, industrial production, and real manufacturing sales. Prolonged declines in production also help make the case for a recession.

Some economic indicators can also warn of a recession, such as the yield curve, unemployment rate, housing starts, and consumer sentiment. These indicators are aggregate metrics that economists use to predict a recession. These measures are known as Leading Economic Indexes and are a useful way to gauge the timing of an economic slowdown. However, while some indicators suggest the economy may be approaching a late stage in its cycle, the data can quickly change the story.

Housing sector led the recession

The housing market has been cooling off for a couple of months now, and some economists are calling it a housing recession. While the slowdown will negatively affect the economy, it can also create an opportunity for buyers who can handle high prices. Specifically, new-home sales have dropped to their lowest level in six years.

The housing sector is only a small fraction of the economy, but it has a remarkable record of foreshadowing the onset of recessions. Since the 1940s, only two recessions have occurred without major downturns in this sector. The recession of 1953 was preceded by a massive swing in defensive spending around the Korean War.

The collapse of the US housing sector is considered to have contributed to the global financial crisis and downturn in overall economic activity. The housing market peaked in 2006 and December 2007, and housing sector employment and overall employment peaked at the end of 2007. At first, the decline was modest, but then began to pick up speed in the fall of 2008. The US gross domestic product (GDP) fell by 4.3 percent from its peak to its trough and the unemployment rate increased to almost 10 percent.

In addition, high mortgage rates and a lack of affordable mortgages caused the demand for housing to plummet. Home values plunged, and many homeowners could no longer afford to pay for their mortgages. As a result, the housing market experienced one of the worst slumps since the 1930s.

Although the housing market has been slower than normal in recent years, it is unlikely to be the cause of a subsequent recession. Rising mortgage rates and restrained spending should keep the housing market from driving the economy again. While the number of homes for sale is below normal, it is unlikely to have a dramatic effect on prices. This situation also affords first-time buyers the opportunity to purchase a home.

Inflation is still sky-high

The latest inflation report underscores the stark reality that the US economy is suffering from a prolonged period of high inflation. Meanwhile, food prices continue to increase and are putting a serious strain on low-income families. In addition, a possible railroad strike could disrupt the domestic supply chain and put more pressure on the consumer’s wallet. Meanwhile, the global economy continues to slow. Moreover, the European Union is considering sanctions that could drive millions of barrels of Russian oil off the world market.

The Bureau of Economic Analysis’s (BEA) Personal Consumption Expenditures (CPI) price index (CPI) measures how much people spend on goods and services. The last time CPI was this high was in the early 1980s, when it reached an inflation rate of 14.6%. Various factors led to the resurgence of high inflation, which is now expected to last for some time.

While the inflation rate in the US has fallen from nine percent to five percent in three months, it remains high. A number of geopolitical events, like the Russian invasion of Ukraine, have also worsened the situation. For example, the onset of the Russian war in Ukraine has disrupted global supply chains, forcing prices to rise. Moreover, the high cost of labor is contributing to the upward pressure on prices.

The recent rise in consumer prices has prompted a series of policies to reduce the cost of living. As a result, many workers are losing their jobs. In addition, government programs are helping homeowners to pay off their debts.

Economic recovery mostly benefited the rich

The economic recovery in the US has mostly benefited the rich, who have a greater share of wealth than other people. Most of their wealth is tied up in financial assets, like stock markets, which have nearly doubled in value since the pre-Great Recession peak. On the other hand, the majority of wealth in middle-class households is tied up in their homes. Especially in the coasts, home prices have increased by a quarter in six years. But this rate is well below inflation. This means that many middle-class families are stuck in homes that have little equity.

While the CARES Act has aided the recovery, it has not sped up the recovery process. Employment and output are still at low levels compared to pre-pandemic levels, and economic hardship is on the rise. Without additional fiscal support, the economy is almost guaranteed to stagnate in the near future.

Trump administration’s reckless behavior increases odds of a single shock

The Trump administration’s reckless behavior is increasing the risks of a single shock to the US economy. The manufacturing sector is experiencing declines that fell short of Wall Street expectations and the hourly wage for manufacturers has declined. Such events are likely to cause a major economic shock and could lead to an unprecedented collapse in the American economy.