Why the U.S. Remains Far From Recession
The pandemic’s after effects fuel economic resilience despite rising interest rates
The pandemic’s after effects fuel economic resilience despite rising interest rates
More than a year after the Federal Reserve began rapidly raising interest rates to tame inflation, the hallmarks of a widely expected recession remain elusive.
Employers are hiring aggressively, consumers are spending freely, the stock market is rebounding and the housing market appears to be stabilising—the most recent evidence that the Fed’s efforts have yet to significantly weaken the economy.
Instead, the lingering effects of the pandemic have left consumers and employers still playing catch-up. That momentum could prove self-sustaining.
Americans are splurging on the activities they skipped during pandemic lockdowns, such as travel, concerts and dining out. Businesses are staffing up to satisfy the pent-up demand. Government policies in response to the pandemic—low interest rates and trillions of dollars in financial assistance—left consumers and businesses with lots of money and cheap debt. The same inflation that so worries the Fed translates into higher wages and profits, fuelling spending.
Many economists expect the Fed’s rate increases to cool the economy and price pressures over time, triggering a recession later this year. So far, however, the data keep coming in hotter than forecast.
Job gains, in particular, remain robust, pumping more money into Americans’ wallets. Payrolls grew by a surprisingly large 339,000 in May, and the increases for the preceding two months were higher than initially estimated, the Labor Department said Friday.
“I don’t think there’s any chance we’re in a recession,” said Justin Wolfers, professor of public policy and economics at the University of Michigan.
The National Bureau of Economic Research, an academic research group and the official arbiter of U.S. recessions, analyses a slew of economic data to help determine whether the economy is in a recession. Most of those indicators look healthy, Wolfers said.
Employers hiring last month included those in sectors such as healthcare, leisure and hospitality and government, which saw sharp job losses at the pandemic’s onset in spring 2020. State and local government—which includes public schools—and leisure and hospitality—a category that spans restaurants, hotels, entertainment and spectator sports—have yet to return to their pre pandemic employment levels amid continuing labor shortages.
Across the economy, job openings increased to 10.1 million in April from 9.7 million in March, far exceeding the 5.7 million unemployed Americans that month. The mismatch between job opportunities and job seekers continues to spur wage growth.
Average hourly earnings grew a solid 4.3% in May from a year earlier, similar to annual gains in March and April.
“I certainly did not think the labor market would remain this strong for this long,” said Carl Tannenbaum, chief economist for Northern Trust.
Courtney Wakefield-Smith is among those who have recently benefited from the strong labor market. The 33-year-old said she was promoted last year to an office job at a New Jersey water utility company. In her new role, she makes more than $25 an hour, well above her part-time jobs earlier in the pandemic that paid between $11 and $17 an hour.
Her higher wage and benefits including maternity leave are helping support her newborn son.
“This is my first child,” she said. “I don’t think I would have been able to afford a child before now to be completely honest.”
The job market could stay tight, largely because millions of former workers near retirement age have dropped out of the labor force since the pandemic began. The share of Americans age 16 and older working or seeking a job held steady last month at 62.6%.
Americans have about $500 billion in so-called excess savings—the amount above what would be expected had pre pandemic trends persisted, according to a May report from the Federal Reserve Bank of San Francisco.
That allows them to shell out for summer travel, concert tickets and cruises despite rising prices—and enabling companies to keep raising them.
Southwest Airlines Chief Executive Bob Jordan said recently the carrier sees strong demand in the next two to three months, the window during which most people book flights. American Airlines raised its projections for unit revenue in the second quarter, citing strong demand.
The number of people passing through U.S. airports during the Memorial Day weekend topped the pre pandemic figure from 2019, according to the Transportation Security Administration.
Brett Keller, CEO of travel site Priceline, a unit of Booking Holdings, said he has been surprised at the strength of travel demand when many consumers are paying more to book an airline ticket or reserve a hotel room.
Keller has seen examples for this summer, with round-trip fares from the East Coast to Boise, Idaho, exceeding $1,000, roughly double $500 a few years ago.
Economic activity and inflation haven’t slowed as much as Fed officials anticipated. Since March 2022, they have lifted the benchmark federal-funds rate from near zero to a range between 5% and 5.25%, a 16-year high.
Higher borrowing costs typically are felt first in rate-sensitive parts of the financial markets and economy, such as stocks and housing. The S&P 500, for example, fell about 25% from late December 2021 to last October as the Fed raised rates sharply. The broad index has since rallied about 20%, which wouldn’t typically happen if the economy were falling into recession.
Sales of existing and new homes fell sharply last year but have climbed since January. A shortage of homes for sale has helped drive home prices higher recently. Home builders are feeling more confident as a shortage of existing homes boosts demand for newly built residences. Residential and industrial construction firms added 25,000 jobs last month, up from a monthly average of 17,000 over the prior 12 months.
These signs of resilience suggest the Fed might need to raise interest rates further to push inflation down from its current rate around 5% toward the central bank’s 2% target.
Fed officials last week signalled an inclination to hold rates steady at their meeting this month. But Friday’s jobs report strengthened the likelihood that they would pair any such pause with a stronger preference to raise rates later this year.
“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Fed governor Philip Jefferson, said Wednesday. “Indeed, skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.”
There are some signs higher rates are having an effect. Businesses slowed investment in the first quarter, cutting back on equipment spending particularly sharply.
The average workweek fell to 34.3 hours last month, the lowest since April 2020 and possibly reflecting that businesses are cutting hours instead of workers. The unemployment rate rose to 3.7% in May from 3.4% in April. The tech-heavy information sector cut 9,000 jobs in May.
Many economists and business executives say it is just a matter of time before interest-rate increases—which work with a lag—significantly sap the economy’s vigour.
Economists surveyed by The Wall Street Journal in April put the probability of a recession at some point in the next 12 months above 50%. But they have said that since October, and the recession appears no closer.
—Alison Sider and Chip Cutter contributed to this article.
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
At the World Plogging Championship, contestants have lugged in tires, TVs and at least one Neapolitan coffee maker
GENOA, Italy—Renato Zanelli crossed the finish line with a rusty iron hanging from his neck while pulling 140 pounds of trash on an improvised sled fashioned from a slab of plastic waste.
Zanelli, a retired IT specialist, flashed a tired smile, but he suspected his garbage haul wouldn’t be enough to defend his title as world champion of plogging—a sport that combines running with trash collecting.
A rival had just finished the race with a chair around his neck and dragging three tires, a television and four sacks of trash. Another crossed the line with muscles bulging, towing a large refrigerator. But the strongest challenger was Manuel Jesus Ortega Garcia, a Spanish plumber who arrived at the finish pulling a fridge, a dishwasher, a propane gas tank, a fire extinguisher and a host of other odds and ends.
“The competition is intense this year,” said Zanelli. Now 71, he used his fitness and knack for finding trash to compete against athletes half his age. “I’m here to help the environment, but I also want to win.”
Italy, a land of beauty, is also a land of uncollected trash. The country struggles with chronic littering, inefficient garbage collection in many cities, and illegal dumping in the countryside of everything from washing machines to construction waste. Rome has become an emblem of Italy’s inability to fix its trash problem.
So it was fitting that at the recent World Plogging Championship more than 70 athletes from 16 countries tested their talents in this northern Italian city. During the six hours of the race, contestants collect points by racking up miles and vertical distance, and by carrying as much trash across the finish line as they can. Trash gets scored based on its weight and environmental impact. Batteries and electronic equipment earn the most points.
A mobile app ensures runners stay within the race’s permitted area, approximately 12 square miles. Athletes have to pass through checkpoints in the rugged, hilly park. They are issued gloves and four plastic bags to fill with garbage, and are also allowed to carry up to three bulky finds, such as tires or TVs.
Genoa, a gritty industrial port city in the country’s mountainous northwest, has a trash problem that gets worse the further one gets away from its relatively clean historic core. The park that hosted the plogging championship has long been plagued by garbage big and small.
“It’s ironic to have the World Plogging Championship in a country that’s not always as clean as it could be. But maybe it will help bring awareness and things will improve,” said Francesco Carcioffo, chief executive of Acea Pinerolese Industriale, an energy and recycling company that’s been involved in sponsoring and organizing the race since its first edition in 2021. All three world championships so far have been held in Italy.
Events that combine running and trash-collecting go back to at least 2010. The sport gained traction about seven years ago when a Swede, Erik Ahlström, coined the name plogging, a mashup of plocka upp, Swedish for “pick up,” and jogging.
“If you don’t have a catchy name you might as well not exist,” said Roberto Cavallo, an Italian environmental consultant and longtime plogger, who is on the world championship organizing committee together with Ahlström.
Saturday’s event brought together a mix of wiry trail runners and environmental activists, some of whom looked less like elite athletes.
“We like plogging because it makes us feel a little less guilty about the way things are going with the environment,” said Elena Canuto, 29, as she warmed up before the start. She came in first in the women’s ranking two years ago. “This year I’m taking it a bit easier because I’m three months pregnant.”
Around two-thirds of the contestants were Italians. The rest came from other European countries, as well as Japan, Argentina, Uruguay, Mexico, Algeria, Ghana and Senegal.
“I hope to win so people in Senegal get enthusiastic about plogging,” said Issa Ba, a 30-year-old Senegalese-born factory worker who has lived in Italy for eight years.
“Three, two, one, go,” Cavallo shouted over a loudspeaker, and the athletes sprinted off in different directions. Some stopped 20 yards from the starting line to collect their first trash. Others took off to be the first to exploit richer pickings on wooded hilltops, where batteries and home appliances lay waiting.
As the hours went by, the athletes crisscrossed trails and roads, their bags became heavier. They tagged their bulky items and left them at roadsides for later collection. Contestants gathered at refreshment points, discussing what they had found as they fueled up on cookies and juice. Some contestants had brought their own reusable cups.
With 30 minutes left in the race, athletes were gathering so much trash that the organisers decided to tweak the rules: in addition to their four plastic bags, contestants could carry six bulky objects over the finish line rather than three.
“I know it’s like changing the rules halfway through a game of Monopoly, but I know I can rely on your comprehension,” Cavallo announced over the PA as the athletes braced for their final push to the finish line.
The rule change meant some contestants could almost double the weight of their trash, but others smelled a rat.
“That’s fantastic that people found so much stuff, but it’s not really fair to change the rules at the last minute,” said Paul Waye, a Dutch plogging evangelist who had passed up on some bulky trash because of the three-item rule.
Senegal will have to wait at least a year to have a plogging champion. Two hours after the end of Saturday’s race, Ba still hadn’t arrived at the finish line.
“My phone ran out of battery and I got lost,” Ba said later at the awards ceremony. “I’ll be back next year, but with a better phone.”
The race went better for Canuto. She used an abandoned shopping cart to wheel in her loot. It included a baby stroller, which the mother-to-be took as a good omen. Her total haul weighed a relatively modest 100 pounds, but was heavy on electronic equipment, which was enough for her to score her second triumph.
“I don’t know if I’ll be back next year to defend my title. The baby will be six or seven months old,” she said.
In the men’s ranking, Ortega, the Spanish plumber, brought in 310 pounds of waste, racked up more than 16 miles and climbed 7,300 feet to run away with the title.
Zanelli, the defending champion, didn’t make it onto the podium. He said he would take solace from the nearly new Neapolitan coffee maker he found during the first championship two years ago. “I’ll always have my victory and the coffee maker, which I polished and now display in my home,” he said.
Contestants collected more than 6,600 pounds of trash. The haul included fridges, bikes, dozens of tires, baby seats, mattresses, lead pipes, stoves, chairs, TVs, 1980s-era boomboxes with cassettes still inside, motorcycle helmets, electric fans, traffic cones, air rifles, a toilet and a soccer goal.
“This park hasn’t been this clean since the 15 century,” said Genoa’s ambassador for sport, Roberto Giordano.