Welcome to Our Be-Careful-What-You-Wish-For Economy

So here we are: When investors aren't worried about inflation, they're worrying about recession. Tech companies are announcing hiring freezes and job cuts in growing numbers. Homebuilders are starting to talk about slowing demand and the supply of existing homes is rising. Walmart reported this week that it has excess inventories.

Isn't this exactly what we wanted?

With the exception of some geopolitical shocks — the war in Ukraine's impact on food and energy, and another round of Covid-19 lockdowns in China — the rebalancing we’ve seen in the US economy in recent months reflects trends that were expected and desired when forecasters were thinking about 2022 at the end of last year. The changes in the economy that have people so worried are in large part what, six months ago, economists were hoping to see.

Let's start with the housing market. It was overheating as recently as March, with conditions that were stagflationary. Inventories were at record lows and home prices were soaring even as mortgage rates had risen from below 3% to above 4%.

At some point affordability was going to be an issue, but it wasn't clear what level of home prices or mortgage rates it would take to cool things down. Two months later, we know — current asking prices and mortgage rates of around 5.5% have finally led to a rebalancing in the market. It's too soon to tell whether this is a temporary pause or something worse, but the unhealthy pandemic boom in the housing market appears to be over for now.

Another trend economists were looking for was a shift from goods spending back to services spending as consumers took fewer pandemic-related cautions and got back to more normal behavioral patterns. We're now seeing this happening. Amazon said in its quarterly earnings report that it found itself overstaffed in March, and Walmart is in the process of working down excess inventories. Meanwhile, airline and hotel companies are reporting strong demand and pricing power. Yet investors have become more anxious about signs of softness in goods consumption than they've been cheered by the boom in leisure.