NPR. Have you ever been on an airplane when it's approaching the airport and instead of landing, the plane just starts to circle.
And at first you're like, this is fine, but the longer you wait, the more this feeling in the pit of your stomach starts to grow.
Yeah. And then the pilot gets on the intercom and says something like, you don't even understand it.
And you keep circling and more time passes.
And before you know every little bump and dip sends you into this low key panic.
You start to think to yourself, is something wrong, are we going to have to land soon?
And when we do, is everything going to be all right?
If you ask us, that's a pretty good analogy for the economy right now.
For more than two years, the Federal Reserve has tried to tame inflation by raising interest rates.
the idea was that it would cool down the economy and bring inflation down to its 2 % target.
And so for months, it feels like we've been circling the runway, wondering when inflation will finally get back to normal and when we finally land, is it going to be a soft landing or a hard one?
And last Friday, the economy just hit one of those stomach churning bumps.
This is the Indicator from Planet Money, I'm Adrian Ma.
And I'm Darian Woods.
budgets. The monthly jobs report on Friday showed the U .S.
labor market cooling and it kind of set the shockwave through the stock market.
But is it a sign that we might be in for a hard landing and a potential recession or is it just some temporary turbulence that on the show will talk to two economic analysts who are divided on that very question?
This podcast comes from MintMobile.
MintMobile is dropping huge savings for the new year by offering any 3 -month plan for only $15 a month.
Switch to MintMobile and new customers can get half off an unlimited plan until February 2.
Go to mintmobile .comatron .com hastened indicator to learn more.
New customers on first 3 month plan only.
Speed slower above 40 gigabytes on unlimited plan, additional taxes, fees, and restrictions apply.
See MentMobile for details.
This message comes from greenlight Ready to start talking to your kids about financial literacy?
Meet greenlight, the debit card and money app that teaches kids and teens how to earn, save, spend wisely and invest.
Start your risk -free trial at greenlight .com slash NPR.
Support for NPR and the following message come from Edward Jones.
What does it mean to be rich?
Is it having a million stories to share?
Is it having more time to give?
Edward Jones's Financial Advisors will support what matters to you.
Edward Jones, member SIPC.
It has been a dramatic week for financial markets here and around the globe.
Corporate earnings disappointed investors.
Major stock indices slumped.
And Japan's biggest stock market saw its worst day in decades.
That's after its central bank raised interest rates and investors who had been borrowing up yen at near zero interest cut and ran.
But one of the most important measures of the economy's health isn't stocks, or bonds, or exchange rates, its jobs and, on Friday, we in the U .S.
got some rough news on that front.
It seems to have catalyzed the sudden downturn in the markets.
The latest jobs report showed job growth slowing down a lot in July and the unemployment rate rising to 4 .3 %and a lot of economists when they saw this said some version of Oh this is a bad sign a sign that the Federal Reserve in its efforts to tame inflation had held interest rates too high for too
long without cutting them and now the chance of a hard landing and a recession just went up right now the Fed's key interest rate is around 5 .3 % It's at the 23 -year high.
And a friend of the show, Julia Pollack, is among those economists who are worried that the Fed has been overly cautious in not cutting that rate sooner.
Julia is chief economist at the jobsite zip recruiter.
I think people were worried because on Wednesday, Fed Chair Powell held interest rates steady and told us that labor market conditions had returned to where they stood on the eve of the pandemic.
That's a quote. But on Friday - Who's saying that things are going back to normal?
He said things were normalizing.
But the jobs report on Friday actually suggested that the labor market is materially weaker than it was on the eve of the pandemic and deteriorating rapidly.
And that is why people think the Fed is behind the eight ball.
Julia gave us three reasons why the labor market isn't going back to some pre -pandemic normal.
First, with the exception of the healthcare sector, the private sector job market has being growing slower than pre -pandemic levels.
Second, Julia says the unemployment rate, while it hit near historically low levels last year, has been inching up.
And between June and July, it went from 4 .1 % to 4 .3%.
That is a pretty substantial increase, and that suggests that the labor market is slacker and slower and weaker than before the pandemic and that American households are really starting to feel it.
Finally, she said there is this thing called the Saam rule.
It's this indicator that has a pretty good track record of predicting recessions and right now, this indicator is flashing red.
When the three month moving average of the unemployment rate rises .5 percentage points above the low point in the year before.
That's all a bit of a word sandwich, but stick with me.
Then that often signals the beginning of a recession.
So, historically, when the unemployment rate goes up that much, it tends to go up by 2 percentage points more afterwards.
But it could go up, all the way to 6 .3 % if history is a guide.
And that would suggest a real recession.
You're saying we don't often see unemployment go up this much without going up significantly more, it's not like we see a little bump, and then it'll come back down?
Exactly. The reason is that deterioration of the labor market can set off a vicious cycle.
Where people lose their jobs, they cut their spending, businesses then see revenue fall, what do businesses do when they see revenue fall, they cut more jobs.
So you can get into a spiral.
To summarize, things in your opinion are not going back to a pre -pandemic normal.
They are entering kind of a concerning phase where we're worried about potentially entering this negative spiral that you talked about.
Right. So for two years the labor market was normalizing.
It was coming back to normal from an incredibly unusual unprecedented set of circumstances, which were leading to overheating and inflation, but it has already gone past normal and is now getting weaker, and that is the disconnect between the Fed speak and what people in the market on Main Street are seeing.
So that's Julia's take, but not everybody watching the kerfuffle over Friday's jobs report agrees it's time to worry.
For that perspective, we called up Matt Kline.
Matt has been a columnist with The Financial Times and Barnes and he currently writes a newsletter called the overshoot, which is focused on economics in the markets.
Matt says, the numbers in the last jobs report look worse than they actually are.
What we're seeing with the rise in unemployment rate is very different from what we've seen in prior downturns.
Remember the unemployment rate counts people who are actively looking for a job.
And Matt says the rise in unemployment last month was driven mostly by what are called new entrants and reent stroke to the job market.
A newellentrant might people who just graduated from school and began their job search, a reentrant would be somebody who took a break from working and is now back on the job hunt.
In short, not all upticks in unemployment are equal.
And so, I'm not saying that everything is fine, it's just that it's a very different set of dynamics than we're used to.
Right, somebody losing a job and that pushing up the unemployment rate is different than somebody deciding, I'm going to get into the game, I'm going to look for a job.
Right. Yeah. And so that makes me think that overall we should be somewhat more sanguine about the job market and what sort of headline data are we suggesting.
You know some people are talking about okay.
Well after last week that the Fed, having held off on cutting interest rates so far definitely needs to make a pretty significant cut come September.
Maybe it should even make an emergency rate cut sooner.
What do you think about this?
I don't think so. I mean I've generally been of the view that the US economy has done remarkably well considering that people say like interest rates are high.
I mean there are certainly data you can Derek like the unemployment rate is like oh like the economy's gone a lot worse clearly we need to do something but then you look at things like you know the GDP numbers.
For example are like other you know measures of spending or wages or what -have -you and you think okay like actually the US economy is growing not only basically the same as as it was since before the Fed started tightening, but it meant some place better.
But be that as it may, there is a lot of pressure on the Fed to get to cutting those interest rates.
And the Fed chair Jerome Powell has set a cut that could be on the table when Fed's board of governors meets again in mid -September.
What I can hear them sharpening those interest rates years right now… Yeah, he did promise.
He definitely will.
But we could hear those knives, blinking in the background at the press conference.
This episode was produced by broadcast.
but be watching. WashingtonWISE is an original podcast for investors from Charles Schwab that unpacks the stories making news in Washington and how it may affect your finances and portfolio.
Listen at Schwab .com Support for NPR and the following message come from IXL Learning.
IXL Learning uses advanced algorithms to give the right help to each kid no matter the age or personality.
Get an exclusive 20 % off IXL tenant membership when you sign up today at ixl .com slash NPR.
From NPR...
