At the risk of dating myself, I cannot think of four words that better describe the “joy” of summer travel. Not knowing where you are, on a seemingly endless journey in the back of an air-condition-free station wagon, was a form of torture few today can comprehend. Jay Powell, the current Chairman of the Federal Reserve, is hearing this question a lot lately.

There are two challenges to answering this question. First, unlike most global entities, the USA does not define a recession as two consecutive quarters of negative GDP growth. We apply judgement in determining economic cycle peaks and troughs on ex-post basis (after the fact). Second, and most importantly, while there are signs of weakness in the economy, there are also pockets of strength, so the data is providing mixed signals. Nevertheless, here are a few recent data points that continue to suggest a gradual weakening trend is underway:

  • Challenger Job Cuts, which tracks publicly announced layoffs, reached the highest level in May since 2020 (COVID) and 2009 (GFC).
  • 1st Quarter GDP was revised lower, showing a contraction of -0.5%, down from the -0.3% in the original release. Tariff front-running had a significant effect, leaving doubt as to the true underlying strength when excluding the one-time impact.
  • Consumer Spending fell in May for the 2nd time this year (3rd monthly contraction on an inflation-adjusted basis).
  • Disposable Income also fell in May, on both a nominal and inflation-adjusted basis.
  • Industrial Production fell in 0.2% in May but manufacturing output ticked up 0.1%, supported by growth in motor vehicles and auto parts.
  • ADP Jobs Report for June showed private payrolls contracted by 33,000.

Aside from the Challenger report, none of these data points in isolation should be alarming. But as we gather evidence to determine where the economy is heading, the weight of the evidence indicates the risk is to the downside.

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