Is the Economy Entering a Recession? Top Economists Are Worried

It’s been six years since the Great Recession ran its course. Most Americans feel like things are on a major upswing, with low gas prices, low unemployment, a rapidly rebounding housing market and other positive factors currently at play. When the bigger picture is examined, however, the threat of another slowdown – or even of a full-blown recession – looks increasingly likely.

For Americans who are finally getting back on their feet, this doesn’t bode well. If the economy really flounders, many will end up where they were just a few years ago. To add insult to injury, the Consumer Financial Protection Bureau, or CFPB, has intensified its efforts to impose harsh regulations on the short-term loan industry. If this comes to fruition along with a slowed down economy or recession, millions of Americans will truly be left in the lurch.

Drop in Non-manufacturing Index Prompts Concern About Looming Recession Among Economists

The Institute for Supply Management, or ISM, publishes indexes that reflect the health of various sectors of the U.S. economy. For a while now, the ISM index has reflected a recession in the manufacturing sector. Its latest report, however, suggests that the slowdown could be expanding into the non-manufacturing sector as well, which could be an indication of a looming recession.

The ISM’s non-manufacturing index dropped to 53.5 percent in January from 55.8 percent in December. Economists had predicted that the index would sit at around 55.2 percent, so this report took many by surprise. For context, when the index is at any number above 50 percent, it means that more companies are expanding rather than contracting. This is the third month in a row in which the index has dropped, which strongly suggests that companies in the non-manufacturing sector are shrinking. Companies in the non-manufacturing sector, or service sector, include those in the retail, banking and health care industries. The ISM’s report shows that in January 2016, such companies grew at the slowest pace in almost two years.

Meanwhile, ISM’s two employment indexes suggest a much slower hiring pace in January as compared with December, during which more than 292,000 new jobs were added. The organization’s employment survey for manufacturers, which was released in early February, fell to a six-year low – the lowest since the Great Recession ended. ADP, the payroll processing company, also released a report suggesting that hiring has slowed in early 2016.

Cheap Gas, Plentiful Jobs – Things Seem to be Going Okay, So Why Worry?

Despite positive factors like high employment rates, cheap fuel and higher pay, Americans still aren’t spending very much. Since 70 percent of the economy is made up of consumers, this is an ominous sign. Despite the holidays, spending fell in December as compared to November. That’s even more surprising given that the Commerce Department reported that incomes rose a little during that period.

In many respects, 2015 was a banner year for the U.S. economy. The unemployment rate closed out at a robust 5 percent, a record number of vehicles were sold, consumers were spending significantly on big-ticket home improvement items and recent college graduates were easily finding jobs and pulling in higher incomes.

There’s a flip side to the equation, however. Between October and December 2015, the economy grew by a mere 0.7 percent, which is the smarket rate since the first quarter of 2015. At the same time, personal spending, which doesn’t include things like food and gas, only grew by 1.3 percent; it grew by 1.5 percent in 2014. Indeed, consumers just don’t seem to want to part with their money, and their spending is needed to sustain the economy. They’re saving more, with $753 billion saved in December 2015 versus $653 billion in December 2014.

Odds are that many folks are still gun-shy about parting with their hard-earned cash after the ravages of the Great Recession. If this keeps up, however, this and other factors could converge to push the U.S. into yet another recession. This time, if the CFPB gets its way, cash-strapped Americans with poor credit may have few places to turn for easy short-term loans. More information about the economy can be found on the Personal Money Store finance blog.

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