Despite U.S. Economy’s Mixed Messages, Fed Official Insists It’s Healthy
Just when Americans have started letting their guards down and getting their hopes up about the strength of the U.S. economy, a variety of factors are converging to hint at a potential slowdown. What’s worse is that some economists fear that a full-fledged recession is looking increasingly possible. At a time when it feels like the country is only just emerging from the chaos of the Great Recession, this kind of news strikes fear into people’s hearts. For those looking for a silver lining, a Federal Reserve official’s recent, optimistic remarks may just suffice.
Is an Economic Downturn Inevitable Despite Many Positive Economic Indicators?
News of a potential downturn — or even a recession — comes as a surprise to many Americans. After all, many signs point to an economy that is robust and resilient. Case in point: On February 5, the Labor Department’s latest report1 indicated that the unemployment had dropped yet again, from 5 percent in December to 4.9 percent in January — the lowest it’s been since February 2008. Many economists define a rate that low as representing total employment, so that should, in theory, bode well for the overall state of the economy.
However, employment is just one little piece of the overall puzzle when it comes to the economy, which is a notoriously complex beast. Low unemployment may not be enough, but many other positive indicators suggest that things are going well. For instance, the same report2 reflected that average wages rose by 2.5 percent over the last year for an average of $25.39 per hour. The housing market continues to recover. In many metropolitan areas, home values are now equal to — or, in some cases, greater than — the level they were at when the recession and housing crisis began. Gas prices are also remarkably low, which should put more cash in consumers’ hands and further bolster the economy.
Troubling Aspects of the Economy Could Be Harbingers of a Looming Recession
Despite the many unquestionably positive developments that are happening in the economy right now, plenty of not-so-promising factors are at play too. However, many of these things wouldn’t be readily apparent to everyday Americans who are going about their daily lives, which is why so many have been greeting news of a potential downturn with incredulity.
The aforementioned report from the Labor Department wasn’t strictly positive. More jobs were added in January, but the number was significantly lower than it’s been for the last several months. Indeed, 151,000 jobs were added. On the face of things, this looks positive. However, 280,000 were added in November, and 262,000 were added in December. Compared with preceding months, then, job growth has decelerated considerably. The manufacturing sector, which is in a recession, added 29,000 jobs. However, the education sector lost 38,500; the transportation and warehouse sector lost 20,300; and around 25,200 temporary jobs were also lost.
Federal Reserve Official: Economy Still Healthy Despite Worrisome Signs
Just as speculation about a potential recession approached fever-pitch range, a top Federal Reserve official spoke out publicly about the state of the economy, insisting that it remains healthy despite the many troubling signs that are currently at play. At a Market News International conference on February 4, Cleveland Federal Reserve President Loretta Mester attempted to assuage people’s fears regarding the economy. “Underlying U.S. economic fundamentals remain sound,” stated Mester3, who added, “We’re looking at medium-term outlook, [the market] may be looking at the short-term.”
Mester’s words may look reassuring from the outset, but many economists took them to mean that the Fed is still expecting to raise rates at some point in 2016. This is unlikely to happen at the March meeting, but it is still entirely possible. Unfortunately, this could spell trouble too. If job growth continues, inflation could accelerate. In turn, interest rates would undoubtedly rise, which would prompt a slowdown in consumer spending. Consumers drive the majority of the market, so this could plunge the country into a slowdown or recession.
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