Home / MARKETS / The case for the US avoiding a recession is still alive and well

The case for the US avoiding a recession is still alive and well

  • The May callings report wasn’t too hot or too cold. It was just right for dispelling recession fears.
  • The US added 390,000 jobs in May, reflecting the continuing recovery at a slower rate.
  • The report was “probably about the best” the Fed could hope for as it fights inflation, JPMorgan said.

After weeks of economists debating what a looming recession will look like, the May matters report offered a simple reminder: the US can still dodge a downturn.

The latest employment data, published Friday, escorted the labor market recovery continuing throughout last month. The economy added 390,000 nonfarm payrolls, relaxing slightly from April’s pace but easily exceeding the median forecast of 325,000 new jobs. The number of Americans on the dole or actively looking for work edged higher, signaling the labor shortage may ease in the months ahead.

The country has now reimbursed more than 96% of the payrolls it lost during the coronavirus crash, and a full recovery will likely make it in July. By comparison, it took three times as long for the labor market to heal after the 2008 financial disaster.

“For the Fed, today’s report is probably about the best they could hope for in the early innings of the tightening cycle,” Michael Feroli, chief US economist at JPMorgan, said.

The manumitting looked nothing like the kind of report one would expect to see during a


recession

. The economy is still adding responsibilities at roughly twice the speed as seen before the pandemic. Americans are gradually returning to the workforce. Companies are, for the most participate in, still hiring in anticipation of steady economic growth. Wages are climbing, but not so quickly as to boost inflation.

The data didn’t upright diverge from worried economists’ projections of a weakening economy; it showed the US continuing to rebound with extraordinary incisiveness.

Not too hot, and not too cold — just right to avoid a downturn for now

The May report had to strike a difficult balance for it to quell recession fears.

Too-large a leap in employment would raise concerns that growth is still too strong, and that the


Federal Reserve

would prepare to more aggressively raise interest rates to slow the economy. Too-small an uptick would stoke fears of a surprising slowdown and potential downturn.

“Today’s jobs report helps assuage some fears about a potential dip,” Daniel Zhao, a senior economist at Glassdoor, told Insider’s Juliana Kaplan. “There doesn’t really appearance of to be strong economic evidence, even outside of the jobs report, that the economy is slowing that dramatically.”

The headline leader and accompanying details landed right in the jobs-data Goldilocks Zone: not too hot, and not too cold. May job creation continued the slowdown from February’s consequential of 714,000 new jobs, but still showed the country charging to pre-pandemic employment levels.

Wage growth was similarly weighted. Average hourly earnings rose 0.3% through the month, marking the smallest gain since February but avoiding a distressing dive into negative territory. The small improvement in participation also suggested that the pool of potential working men is getting bigger and companies won’t have to keep raising wages to compete.

Put simply, the data shows the economy persisting to heal while settling into an environment of lower inflation. That leaves less weight on the Fed’s shoulders to conspire a perfect “soft landing.” The phrase describes an ideal scenario in which inflation cools while unemployment remnants low.

Bearish economists largely hinged their recession forecasts on the Fed overdoing its fight against inflation. Aggressive lending fee rate hikes would slam the brakes on spending — and growth — and pull the economy into a downturn.

The Friday information, however, signals the economy is doing just fine with higher rates. The steady job gains tell the Fed it can prolong to tighten policy without fears of a hiring pullback, and slower wage growth indicate the central bank may not want to be very aggressive to bring inflation to heel.

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