Recession risk still exists for the US economy: Gary Shilling

Although the U.S. economy has escaped a recession thus far, financial researcher Gary Shilling believes that there is still a chance for a more severe economic slump.

Consider small companies in the United States to be among the “typical predictors of recessions, [like] the yield curve, the leading indicators,

According to Shilling, CNBC, “small businesses are very sensitive to economic conditions because they don’t tend to be very heavily capitalized.” “They are making reductions in other areas and their employment.”

But a major factor in the United States’ current ability to avoid a recession is the labor market as a whole.

According to Shilling, “we’ve had more strength in employment than is probably commensurate with the state of business.”

Businesses that were hiring during the labor shortage had to fight for candidates.

After investing so much time and money in hiring new workers, those companies are now hesitant to let go of existing personnel, which, in Shilling’s opinion, has maintained the labor market stronger than anticipated.

Shilling stated, “I think you normally would have had that labor market weakness and would have [caused] a recession [in 2023].” “That implies that whatever it is, it’s delayed, but it doesn’t mean we won’t have one.”

“There are numerous early indicators of labor market weakness,” he stated, citing pay increases, resignations, and service inflation.

“The Fed is facing challenges due to the rise in service inflation, as wages in this sector are increasing by 5% or 6% annually,” Shilling stated. “Now that hardly fits with the 2% inflation target set by the Fed.”

Interest rates will be lowered by the Federal Reserve at least three times in 2024, according to its stated intentions.

The Federal Reserve will lower interest rates, but they want to make sure that inflation is eliminated completely because, in my opinion, they are not in a rush. And why ought they to be?” Shilling said. “There’s no conclusive proof that the economy is collapsing. The Federal Reserve is not in a rush to lower interest rates as long as employment remains robust.