While stock markets have yet to decide when they’re going to take their plunge, data from many other sectors of the economy continue to indicate that a slowdown is coming, if it hasn’t arrived already. Chief among those is the latest jobs report, which showed that the economy only added 20,000 jobs in February. That was a huge miss compared to the 180,000 jobs expected by most economists.
With job numbers lower, unemployment claims increased in February, another worrying sign. And while the latest producer price index (PPI) numbers were low, that isn’t necessarily a good sign. Remember that during the financial crisis inflation figures also dropped.
That’s part of what made the crisis so difficult for the Fed to figure out. Previous recessions had seen slowing inflation but not the severe drop that manifested itself in 2008. That severe drop was part of what led the Fed to initiate its programs of quantitative easing (QE). And any indications of price deflation in the future will probably spur the Fed to begin monetary policy once again.
Of course, if the Fed starts to see accelerating inflation it isn’t necessarily going to pump the brakes either. Numerous Fed officials have left open the possibility that the Fed may let inflation overshoot its 2% target, preferring to see definite signs of overheating before they begin to pull back.
Given how weak most markets are, and how weak the housing market continues to be, there shouldn’t be any danger of the economy overheating. We may very well be in the middle of a recession already, exacerbated by the trade dispute with China. Expect to see steadily worsening economic data as the year progresses, with fewer job gains, falling home sales, and companies in a whole host of industries taking steps to minimize the damage done by the weakening economy.