DENVER — We have a lot of headlines flying at us about the economy, often seemingly at odds with each other. Friday, the state of Colorado reported very strong jobs numbers with the unemployment rate falling to 3.4%.
A number that low would, normally, leave economists feeling optimistic about economic prospects. On the other hand, the jobs report is released with the backdrop of high inflation, and a Federal Reserve raising interest rates to try to control it—signals that would, normally, warn economists of an impending recession.
“If we do enter a recession—or, if we’re in one already—it will be one unlike any we’ve experienced in recent cycles,” said Caleb Silver, Editor-in-Chief for Investopedia, acknowledging how difficult it can be to sift through the noise in the barrage of economic headlines. “We’re facing rising inflation up above 9%, where everything from food and energy to rent keeps rising on the one hand. We also have rising interest rates from the Federal Reserve to combat that inflation. But the jobs market remains very strong, and consumers are hanging in there. We’ve never had a situation quite like this, where demand remains very very strong while prices remain sky high. It’s a really interesting dynamic.”
Consumer confidence in the United States dropped to its lowest level in 16 months in June, with inflation and rising interest rates causing Americans to be more pessimistic about the future than at any point in almost a decade, according to the Associated Press. Consumer spending is showing sings of slowing as well, which Silver views as the most important metric for gauging the health of the economy.
“Consumer spending is the most important part of our economy, because it does account for 70% of US GDP,” Silver explained. “If consumers start to pull back and start to tighten their belts—because they either fear a recession or they feel that they’re already in one personally—then you’re going to see businesses start to rein in spending as well, which would mean less hiring, which would mean less expansion. And that could really accelerate a recession.”
With the mixture of factors converging together, the U.S. could be looking at an economic slow down that is less severe but longer lasting than other recessions, Silver said. Ahead of that possibility, he said it is important to have enough in savings to cover at least sixth months of expenses.
“You don’t want to overspend, and you don’t want to spend on the things you can’t afford right now,” he said. “The one thing you really don’t want to have, if a recession does happen, is a lot of debt that could really set you back years if not generations.”