Making sense of economic trends

DENVER — We have plenty of headlines on the economy, often seemingly at odds with each other. On Friday, the state of Colorado reported very strong employment numbers, with the unemployment rate falling to 3.4%.

Such a low figure would normally leave economists optimistic about the economic outlook. On the other hand, the jobs report is released against the backdrop of high inflation and the Federal Reserve raising interest rates in an attempt to control it – signals that would normally warn economists of a impending recession.

“If we go into a recession – or if we already are – it will be a different recession than those we have experienced in recent cycles,” said Caleb Silver, editor of Investopedia, acknowledging how it can be difficult. be sifting through the noise in the deluge of economic headlines. “We are facing rising inflation above 9%, where everything from food and energy to rent continues to rise on the one hand. We also have rising interest rates from the Federal Reserve to fight that inflation. But the job market remains very strong and consumers are clinging to it. We have never experienced such a situation, where demand remains very very strong while prices remain exorbitant. It’s a really interesting dynamic.

U.S. consumer confidence fell to a 16-month low in June as inflation and rising interest rates made Americans more pessimistic about the future than at any time in nearly a decade, according to the Associated Press. Consumer spending is also showing signs of slowing, which Silver considers the most important metric to gauge the health of the economy.

“Consumer spending is the most important part of our economy, as it accounts for 70% of US GDP,” Silver explained. “If consumers start to pull back and tighten their belts, either because they fear a recession or because they feel they are already in it personally, then you are going to see companies start to limit their spending as well. , which would mean less hiring, which would mean less expansion. And that could really accelerate a recession.

With the mix of factors converging, the United States could look forward to a less severe but longer-lasting economic downturn than other recessions, Silver said. Prior to this possibility, he said it was important to have enough savings to cover at least a sixth month of expenses.

“You don’t want to overspend and you don’t want to spend on things that you can’t afford right now,” he said. “The one thing you really don’t want to have, if a recession happens, is a lot of debt that could really set you back years or even generations.”