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- The US economy isn’t in a recession yet.
- But the tech, housing, and manufacturing industries might be already.
- The more industries that falter, the greater the odds the whole economy falls with them.
No, the US economy isn’t in a recession yet. But some of its key industries might be, suggesting the desired “soft landing” is far from a sure thing.
Bloomberg economist Anna Wong, for instance, recently put the chances of a US recession this year at 80%. But as more industries fall into downturns of their own, she said it could become increasingly difficult for the US economy to avoid the same fate.
“We have a manufacturing recession, a housing recession, a tech recession,” she said in a Bloomberg post last week. “Things are starting to add up.”
It’s possible, however, that the US simply experiences a “rolling recession,” Loyola Marymount University finance professor Sung Won Sohn told CNBC. In this scenario, parts of the economy would “take turns suffering rather than simultaneously” — and the broader economy would never reach recession status.
Recent GDP and retail sales figures point to a slowing but still-growing economy, and economists say the US could enter a recession in 2023. That said, the labor market is still shockingly good, with the US adding a surprisingly large 517,000 jobs in January and seeing the lowest unemployment rate since 1969. Jobless claims figures over the past month remain low despite layoffs in Big Tech.
If the US economy does ultimately fall into a recession, it will partially be because the following three industries dragged it down with them.
The Fed’s efforts to cool rising prices may have doomed housing
Ever since the Federal Reserve began raising interest rates to combat inflation, experts knew it could be bad news for the housing industry. Rising rates have led to elevated mortgage rates which, in combination with already-high home prices, have dampened demand.
As early as last September, ING’s chief economist James Knightley told Insider the US housing market had entered a recession.
“We have only had one monthly fall in house prices but with more supply coming on the market at a time when demand is weakening rapidly implies that prices fall further,” Knightley said at the time, adding that home affordability was “stretched to the limit.”
Five months later, things haven’t improved much.
“The housing market is already in recession,” Fannie Mae’s Deputy Chief Economist Mark Palim told Insider, pointing to the “pretty dramatic declines” in home sales in recent months. Fannie Mae is projecting a roughly 7% decline in home prices over the next 24 months.
Home applications have risen in recent weeks as mortgage rates have fallen slightly, but Mortgage Bankers Association economist Joel Kan told Insider that homebuying activity “remains tepid.”
Americans cutting back spending is bad news for manufacturing companies
US consumers facing inflation and dwindling savings are spending less on goods. That’s bad news for the manufacturing industry.
On Wednesday, Reuters markets analyst John Kemp said in a column that US manufacturers “probably entered a recession” in the fourth quarter of last year, based on the new results of the monthly Institute for Supply Management Report. The index, a survey-based measure of activity across the sector, fell to its lowest level since March and April of 2020, and excluding these months, the lowest level since the Great Recession in June of 2009. In December, PMI, another indicator of manufacturing activity, fell to its lowest level since May of 2020.
While the manufacturing industry has avoided widespread layoffs thus far, Kemp attributed this in part to “labor hoarding,” or a hesitancy from business to let workers go after having a difficult time attracting labor over the prior year.
The industry hasn’t been entirely unscathed by layoffs either. 3M, for instance, recently announced it was cutting 2,500 manufacturing roles across the globe.
Tech companies have led the way with layoffs
If any area of the economy is going through some challenges, it’s the tech industry.
In 2022, tech companies like Meta and Twitter laid off roughly 150,000 workers across the globe. While this fell far short of the two million workers let go during the dotcom bubble of 2001, it was well above the roughly 65,000 workers laid off in the sector during the worst years of the Great Recession.
Layoffs have come full speed ahead so far in 2023. There were over 55,000 reported tech layoffs during the first 20 days of January, more than the entire first half of 2022.
The industry’s struggles have been driven by a myriad of factors, including rising interest rates and slowing advertising demand. It’s led some to declare that a “tech recession” is already upon us.
The layoffs, in particular, however, can partially be attributed to companies scaling up their workforces too quickly.
When the pandemic took hold, and Americans flocked to streaming entertainment, at-home fitness, food delivery, and ecommerce, many companies thought this shift would be a permanent acceleration — and hired in mass as a result. But today, businesses in these industries are reckoning with the possibility they got a bit ahead of their skis.
It’s why despite significant job cuts, companies like Amazon, Microsoft, and Alphabet still have significantly more workers than they did a few years ago.