The U.S. economy, though clearly facing a growing risk of recession, continues to exhibit remarkable strengths, particularly in the labor market, as illustrated by continued job creation and another drop in the unemployment rate in the September 2022 jobs report.
The Curse of the Strong U.S. Economy
The booming labor market complicates the Fed’s mission to moderate inflation without recession.
October 07, 2022
Jakub and Jedrzej Krzyszkowski/Stocksy
Summary.
With GDP contracting in the first half of the year and a cratering stock market, it may seem surprising to describe the U.S. economy as “strong.” While the haze of macroeconomic data is exceptionally contradictory, the current reality is that highly profitable firms are employing a record number of workers and paying them rising wages. This would all be good news if it didn’t stoke the fire of inflation. In fighting inflation, the Fed is now much more accepting of the risk of causing a recession. When recession looms, the reaction from executives is often to retreat behind the moat, pull up the drawbridge by cutting orders, production, investment, and the workforce, all with an aim to fortify the balance sheet with liquidity to ride out the storm. But this alone would be a wasted opportunity to improve competitive position at a time when rivals will be distracted.