The U.S. economy still faces a recession risk: Gary Shilling

The
U.S.
economy
has
avoided
a
recession
so
far
but
the
risk
of
a
deeper
economic
downturn
still
looms,
according
to
financial
analyst
Gary
Shilling.

Take
U.S.
small
businesses
as
one
of
the “normal
harbingers
of
recessions,
[such
as]
the
yield
curve,
the
leading
indicators,”
Shilling
said.

“Small
businesses
are
very
sensitive
to
economic
conditions
because
they
don’t
tend
to
be
very
heavily
capitalized,”
Shilling
told
CNBC. “They
are
cutting
back
on
their
employment
and
other
areas.”

However,
the
labor
market
at
large
is
a
key
reason
the
U.S.
has
thus
far
avoided
a
recession.

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

During
the
labor
shortage,

businesses
that
were
hiring
had
to
compete
for
workers. 

Now,
those
companies
are
reluctant
to
lay
off
staff
after
spending
so
much
time
and
energy
to
hire
new
employees,
which
Shilling
believes
has
kept
the
labor
market
stronger
than
expected.

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

However,
Shilling
is
watching
for
signs
of
a
slowing
labor
market.

“There
are
a
lot
of
preliminary
signs
of
weakness
in
the
labor
market,”
he
said,
pointing
to
wage
gains,
quits
and
service
inflation.

“It’s
the
service
inflation
[that]
really
is
a
difficulty
for
the
Fed,
and
if
you
look
at
wages
in
the
service
area,
they’re
rising
5%
or
6%
year
over
year,”
Shilling
said. “Now
that’s
hardly
commensurate
with
the
Fed’s
target
of
2%
inflation.”

The
Federal
Reserve
has
indicated
that

it
plans
to
cut
interest
rates
at
least
three
times
in
2024. 

“The
Fed
is
going
to
reduce
interest
rates,
but
they
want
to
make
sure
that
inflation
is
killed
and
killed
dead
because
I
think
the
Fed
is
in
no
rush.
And
why
should
they
be,”
Shilling
said. “There’s
no
clear
evidence
that
the
economy
is
falling
apart.
As
long
as
the
employment
is
as
strong
as
it
is,
the
Fed
is
in
no
rush
to
cut
interest
rates.”

Watch
the


video

above
to
learn
more
about
what
may
be
next
for
the
U.S.
economy,
from
key
indicators
and
artificial
intelligence
to
globalization
and
the
next
presidential
election.