Page 10 - NBIZ October 2022

Growth in nonfarm payroll employment, noted earlier, U.S. PURCHASING MANAGERS INDEXES
stands out as the strongest signal the nation is not in re- Readings Above 50 Signal Expansions
cession. The nation added 293,000 jobs in June, 500,000 in
July, and another 300,000 in August. Prior to the pandem-
ic, U.S. job growth averaged 200,000 per month.
The best indicators, or at least the ones easiest to com-
prehend, are those tied to the workforce. Are em ployers
hiring? How many open jobs do employers need to fill?
Have layoffs picked up? If someone has lost their job, are
they having difficulty finding a new one? The an swers to
these questions indicate the economy is still expanding.
• The nation added 1.6 million jobs in Q1 and 1.0
million in Q2. That’s more than the average annual
job growth (2.2 million) of the past ten years.
• The Bureau of Labor Statistics estimates employ-
ers had 11.2 million open positions they were Source: Institute for Supply Management
actively trying to fill at the end of July. In the ten
years prior to the pandemic, job openings aver-
aged 5.2 million. How likely is the U.S. to end up in a recession?
• Initial claims for unemployment benefits, a proxy The U.S. Federal Reserve began raising interest rates
for lay offs, averaged 235,000 a week since June. in March and has signaled it will continue raising them
In the ten years before the pandemic, they aver- until in flation recedes to an acceptable level. With higher
aged 215,000. Early in the pandemic, they aver- rates, any financed purchase—housing, vehicles, real estate,
aged 4.1 million. machin ery, inventory—becomes more expensive. As costs go
• Continued claims, a proxy for difficulty in finding up, bus inesses and households consume less. Sup ply eventu-
em ploy ment after being laid off, have averaged ally catches up with demand and prices stabilize. Economists
1.36 million per week since early June. In the ten wor ry that the fed will raise rates so high that demand crash-
years prior to the pandemic, they averaged 1.74 es and the U.S. slides in to reces sion. That’s been the pattern
million. At one point in the pandemic, they exceed- in four of the last six recessions. In his recent remarks, Fed
ed 21.2 million. chairman, Jerome Powell, has ack nowledged that the nation
will suffer economic pain before inflation is in check.
More recent concerns have focused on the possibility of
CLAIMS FOR UNEMPLOYMENT BENEFITS recession in Europe and the dramatic slowdown in China.
The European Union imposed sanctions on Russia over
its invasion of Ukraine; Russia retaliated by shutting off
natural gas deliveries to Europe and threatening to stop
6 25 shipments of crude and refined products as well. The
5 20 resulting energy shortage and price shocks will likely tip
4 the EU into a recession.
15
3 Also worrying is the considerable slowdown in the Chi-
10 nese economy. Fifteen years ago, China’s economy grew at
2 double-digit rates. Over the last five years, growth slowed
1 5
to between 6.0 and 8.0 percent. Economists expect growth
0 0 of 2.0 to 3.0 percent this year. The nation continues to
'17' 18 '19' 20 '21' 22 '23 lock down large swaths of its economy during COVID out-

breaks, impacting con sumers and businesses. China is also
Source: U.S. Employment and Training Administration hobbled by an overbuilt real estate market that may lead to
widespread loan defaults, further stifling the economy.
Finally, the Institute for Supply Management’s The EU recession and China’s turmoil both threaten the
Purchasing Man agers Index (PMI) provides an ad- ongoing U.S. expansion. At the very least, the U.S. would
ditional gauge of the na tion’s economic health. The experience slower employment growth and weaker trade.
manufacturing, ser vices, and hospitals PMIs all signal
expansion in their sectors of the economy, albeit man-
ufacturing activity has slowed considerably in recent What might the next recession look like?
months. In the table which follows, readings above 50 History offers some clues. Except for the COVID-in-
signal expansion in those sectors of the U.S. economy, duced recession, most have been short and shallow. The
and readings below 50 signal contraction. COVID recession was short but deep.

10 NBIZ ■ October 2022