This is a much different economy than a year ago. People can feel the change.
By Heather LongAugust 8, 2024 at 8:00 a.m. EDTWhen I saw the stock market rout in recent days, I was relieved. The big dip did two things that were much needed: First, it took some craziness out of the market. The “magnificent seven” tech stocks needed a reality check on their valuations, and they got it. Second, the big dip pretty much guarantees the Federal Reserve will cut interest rates in September — and probably a few more times this year. The risk of a recession is now clear for anyone to see.
Is the United States already in a recession? Virtually all the evidence says no. The economy is still growing at a robust pace and adding more than 100,000 jobs a month. Most importantly, businesses are still investing and families are still spending. While Americans are no longer splurging on new trucks, kitchen renovations and huge weddings, they continue to do mini-splurges, especially if they can get a good deal. The U.S. economy didn’t fall off a cliff in the past week. What changed is investors went from thinking there was almost zero chance of a recession in the coming months to thinking there is a 25 percent likelihood. It’s still small, but that risk had to be factored in.
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FollowWhat’s really going on is the economy is slowing down to a walk after years of sprinting. It’s hard to judge slowdown situations. Everyone is trying to figure out whether the economy is moderating to a normal walking pace, an Olympic speed-walking gait or something that looks a lot like a hobble. People can feel the deceleration. There aren’t as many “we’re hiring” signs around, and discounts are back everywhere from McDonald’s to Saks Fifth Avenue.
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This is a different economy from the one we had a year ago. In 2023, consumption (adjusted for inflation) was averaging 2.75 percent growth. So far this year, that’s cooled to a 1.9 percent pace. That’s just below the historical norm, but it feels weak after the post-pandemic boom. It’s a similar story in the labor market. Unemployment is up (4.3 percent now versus 3.5 percent a year ago), and it’s taking longer for people laid off to find jobs. While unemployment remains low by........