National Economic Outlook
By Ingo WInzer
Overall, in October, jobs grew 1.9 percent compared to last year, continuing a trend towards slower growth as more pandemic job losses are recovered. That’s still the case at restaurants, in healthcare (nursing homes) and government (state government).
Our best estimate of where growth is headed is provided by the very large business services sector, where job growth now is around 1 percent. This sector provides the services that all businesses need, so it’s a measure of how well businesses are doing.
An economy growing about 1 percent per year isn’t bad, but it’s vulnerable. Any international, political or financial shock can bump it into the spiral of recession. And it’s possible that a shock is on the way if home prices start to slide in the next few quarters.
Another measure of how well the economy is doing is provided by Gross Domestic Product, almost 70 percent of which comes from consumer spending. Starting at a fairly low level at the end of 2022, GDP has steadily increased and was up 2.9 percent in the third quarter, compared to last year, and 4.9 percent compared to the second quarter.
Most of the increase is due to more consumer spending, which is puzzling in light of the slow growth of consumer income. A possible explanation – and a very worrying one – is that the high spending comes from homeowners, who feel much richer because the value of their home is 50 percent greater than it was two years ago.
If this is the case – and it’s my speculation only – the economy could be in for a big shock when home prices start to slide in 2024 and homeowners rethink their spending plans. Home prices are so high that a readjustment period could last several years and bring prices down 20 percent or more. A recession in 2024 is a distinct possibility.
We’ll know more at the end of November, when new home price data come out.
The 1.9 percent increase in jobs in October included increases of 2.7 percent in construction, 0.1 percent in manufacturing (the autoworkers strike), 0.4 percent in retail. 0.7 percent in finance, 1.1 percent in business services, 3.9 percent in healthcare, 2.9 percent at restaurants, and 2.8 percent in government.
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