Gary Shilling, a financial analyst, has warned that while the US economy has managed to avoid a recession so far, there is still a looming risk of a deeper economic downturn. Small businesses are often seen as indicators of recessions, according to Shilling, as they are highly sensitive to economic conditions and tend to cut back on employment and other areas when faced with challenges.
One of the reasons why the US has not faced a recession yet is due to the strength of the labor market. Despite signs of weakness in the labor market, businesses have been reluctant to let go of staff due to the previous labor shortage that forced them to compete for workers. This has kept the labor market stronger than initially expected, delaying any potential recession until later.
However, Shilling is closely monitoring signs of a slowing labor market such as wage gains, quits, and service inflation. He highlighted service inflation as a particular challenge for the Federal Reserve, especially as wages in the service sector are rising much higher than the Fed’s target inflation rate of 2%. The Federal Reserve plans to cut interest rates at least three times in 2024 in an attempt to combat inflation and maintain economic stability.
Shilling emphasized that while there is no clear evidence that the economy is falling apart, he believes that it’s important for policymakers to take action now before things get worse. He discussed key indicators such as GDP growth, consumer spending, and business investment as important factors in shaping the future of the US economy. Additionally, Shilling highlighted how artificial intelligence and globalization will continue to shape industries and economies around the world. Finally, he mentioned how important it will be for policymakers to address issues related to income inequality and social mobility if they want to ensure long-term economic stability.
