Chief Economist Eugenio J. Alemán discusses current economic conditions.
For anybody watching the behavior of the US economy during the last couple of years it is clear that it is not-WYSIWYG (What You See Is What You Get). The presumed technical definition of two consecutive quarters of negative GDP growth is not the real definition of a recession, according to the NBER. Never mind that we believe that the NBER would never call for a recession during a period, the first half of 2022, when employment grew by 3.5 million jobs or by 438,000 jobs per month. Or 5.8 million jobs during the last 12 months at an average of 487,000 new jobs, or recovered jobs lost to the COVID-19 pandemic.
It is true that the economy weakened considerably during the second quarter of the year and compared to the first quarter for all the variables that really matter, but it seems that the economy is, once again, regaining some strength, according to some recent indicators. The ISM Manufacturing Index remained flat in August, according to the Institute of Supply Management, but in expansion territory, while the ISM Services Index was slightly higher in August than in July and was also in expansion territory.
Meanwhile, initial jobless claims, which had been increasing early in the year and were used by some economists to show a weakening labor market and thus a weakening economy, have changed course lately and have been declining once again, tentatively showing an improving labor market, which is not what the Federal Reserve (Fed) wants to see.
Since the Fed doesn’t want to see a strengthening labor market because it wants to see an increase in the rate of unemployment to reduce the pressure from wages and salaries on inflation, the news of an improving economy could push it to increase rates more than what markets are expecting today.