Key Takeaways
- The increase in unemployment is primarily due to an expansion of the labor force rather than job losses.
- The inflation gap between consumer prices and changes in weekly wages has narrowed.
- In the next decade, the increased need for elder care, the potential impact of AI and robotics on productivity, and the projected rise in debt and deficits could greatly impact economic growth.
On Aug. 7, Old National Bank’s Chief Economist Matt Finn and Senior Vice President of Interest Rate Risk Management Tom Plodzeen hosted a webinar discussing current economic indicators and other pressing issues for business owners across the Detroit Region.
Are We Heading Toward Recession?
The short answer is probably not, according to Old National Bank. While the rise in payrolls fell short of expectations, with an increase of 114,000 jobs compared to the anticipated 175,000, the U.S. unemployment rate also climbed to a three-year high of 4.3%. Additionally, average hourly earnings increased by 0.2%, leading to a decline in year-over-year earnings growth to 3.6%.
Finn also noted the rise in unemployment is due to an expansion of the labor force rather than job losses, unlike in previous cycles. Other factors, like the most recent hurricanes, have really only impacted payroll figures and work hours, while job openings have remained steady.
“We got a lot of people retiring, so you have to replace those jobs first before you gain more employment,” Finn said. “Even with the July number, which is a little weaker, we’ve seen [the employment numbers] stabilize.”
While most measures of wage growth align with the Federal Reserve’s 2% inflation target, the rise in unemployment over the past year primarily affects those with lower educational attainment. Overall, Plodzeen sees these trends optimistically, believing it will lead the Federal Reserve to consider slightly lower rates, but not too low to cause any recession concerns.
“We’ve had a red-hot employment picture, and now we have it cool – which is what the Fed wanted,” Plodzeen said. “By having it cool down, it would help inflation. Over the last four months, it has been tracking under 2,000. Employment seems to be trending in a way where the Fed would want to bring down rates.”
Inflation Gap Has Narrowed
In June, the “inflation gap” between consumer prices and cumulative changes in weekly wages narrowed to 4.3%, bringing good news for consumers. Earlier this year, consumer spending stalled as inflation outpaced income growth. However, with inflation slowing, forecasts suggest a rebound in consumer spending supported by increases in real income, a tight labor market, and positive wealth effects. This shift signals a more favorable economic outlook for consumers moving forward.
The 4.3% gap is the pain of what [consumers] are feeling,” Finn said. “Their wages are not keeping up with the accumulative growth of prices. The take-home pay is not buying as much as it used to.”
Related: Explore Monthly Economic Indicators With the Chamber
Elder Care, AI, and Debt to Control the Next Decade
Looking ahead to the next decade, Old National Bank predicts three significant themes shaping our world.
- Shifts in consumer spending and a growing need for elder care, as there is an estimation that there will be more Americans over 65 than under 18 by 2035.
- Artificial intelligence and robotics are poised to revolutionize productivity and drive demand for in-home healthcare technology.
- Debt and deficits are projected to rise significantly and will likely constrain economic growth as borrowing costs increase.
Finn said the changing landscape of the U.S. economy and the emergence of these significant themes underscore the need for agile and forward-thinking strategies to navigate potential challenges and harness new opportunities.
“This is a big shift in our way of thinking,” Finn said. “It’s not like when the internet and e-commerce began to launch. That took a decade to unfold; we think AI is going to do the same thing.”