The past three years have been anything but typical. The U.S. economy plunged into a covid recession in early 2020 — when more than 20 million Americans lost their jobs in one fell swoop — then quickly bounced back. Since then, U.S. employers have been hiring with gusto, adding hundreds of thousands of workers a month. Americans are returning to the workforce in large numbers, and Black unemployment is at an all-time low. Unemployment stands at 3.5 percent , near 50-year lows. As a result, Americans are unusually well-positioned to deal with the challenges of stubborn inflation and economic uncertainty. Even though wage growth has slowed, people have jobs and feel they can find another one easily, which has emboldened them to keep spending. So far, the strong hiring has outpaced layoffs that have marred the tech, media and finance industries. First-time claims for unemployment insurance fell by 16,000 last week, to 230,000, which has been slowly been inching up but still considered low. “We’re in a period of high inflation, high and rising interest rates — more often than not, that would land you in a recession,” said Mark Zandi, chief economist at Moody’s Analytics. “But people are employed. They’ve been able to hang tough.” The labor market — a pillar of economic resilience — has led to a “rolling recession,” where parts of the economy, such as housing or manufacturing, take turns contracting, according to Sung Won Sohn, an economist at Loyola Marymount University in Los Angeles. The end result is positive, but subpar, growth. “The strong and healthy job market is one of the reasons we’re not seeing every sector declining simultaneously as we do in a classical recession,” he said. “That is the bedrock of the economy that’s enabled a more moderate rolling recession.” But the outlook can change quickly if the economy sours. Layoffs are considered a lagging indicator, which means they tend to come after a downturn has already begun. And although the Fed expects a modest increase in unemployment this year — to about 4.5 percent — economists say a more dramatic increase in joblessness isn’t out of the question.

During the pandemic, the U.S. government injected an unprecedented $5 trillion into the economy to help keep families and businesses afloat. Americans received stimulus checks, employers got low-interest loans, and low-income families were able to tap into extra food stamps. The cumulative result of that spending was an extra $2.3 trillion in U.S. bank accounts that helped families make ends meet, even as inflation surged to 40-year highs. “Why has the economy been able to dodge a recession for so long? At least part of the answer is because of the government’s fiscal stimulus initiatives,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities America, who also served as a Trump White House economic adviser. “People had a significant amount of stimulus savings that allowed them to keep spending for longer. That kept the economy more robust than what many had thought possible.” Indeed, the latest report on gross domestic product confirmed that in the first part of 2023, state and local spending has continued to prop up the economy. But, LaVorgna added, the good times may soon be coming to an end: Excess savings are set to run out this summer, and there are already signs that Americans are reining in spending on goods such as cars, appliances, clothing and furniture.

Pent-up demand for travel, dining out and other services

Even as Americans have stopped buying things, they’ve been happy to splurge on experiences, like restaurants, flights, concerts and ballgames. That has helped keep the economy humming even as manufacturing slumps to a three-year low . “Some subsectors of consumption are already experiencing a recession,” said Sohn, of Loyola Marymount. “We have excess inventory — Walmarts and Targets are running sales — but service-sector consumption is still doing reasonably well.” For the most part, Americans have continued to shell out for leisure and entertainment. Weekly movie theater visits have surpassed pre-pandemic levels, according to Torsten Slok, chief economist at Apollo Global Management. And spending at restaurants and bars rose 13 percent in March from a year earlier, government data shows. As a result, hotels, museums, restaurants and theaters have been rapidly hiring to keep up with demand. Those additional jobs are helping offset layoffs in other parts of the economy, such as construction, manufacturing and retail. Even so, there are signs that families are rethinking their spending habits. The number of people dining out is steadily declining from a year ago, according to data from restaurant reservation platform Open Table. Travel agents are also reporting slowdowns in demand.

Better-than-expected global outcomes

It isn’t just the U.S. economy that’s managed to stave off recession for longer than expected. Other major economies in Europe and Asia have also fared better than predicted despite the ongoing global pandemic and Russia-Ukraine War. That has helped keep the global outlook in balance — at least for now. A mild winter in Europe helped keep higher energy costs at bay, while China’s economy has rebounded remarkably quickly in the months since it relaxed its zero-covid policies. In January, the International Monetary Fund channeled newfound optimism when it upgraded its forecast for global growth, to 2.9 percent, up from its earlier expectation of 2.7 percent. “The outlook is less gloomy than in our October forecast,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said at the time. “We are not seeing a global recession right now.” But it has recently reassessed that rosy outlook, saying the fate of the global economy is “uncertain again” following banking turmoil and persistent inflation. The IMF now expects more muted overall growth, of 2.8 percent , this year. “The world economy is still recovering from the unprecedented upheavals of the last three years, and the recent banking turmoil has increased uncertainties,” Gourinchas said in a statement. “Once again, risks are heavily tilted to the downside.”

Business

Sharp economic slowdown triggers new recession fears

Here are four reasons it has been so difficult for economists to get a handle on what’s happening

By Abha Bhattarai

Updated April 27, 2023 at 4:10 p.m. EDT|Published April 27, 2023 at 10:01 a.m. EDT

Traders work on the floor of the New York Stock Exchange. Data released Thursday shows that economic growth slowed markedly at the beginning of the year, to an annual rate of 1.1 percent from 2.6 percent in the previous quarter. (Michael M. Santiago/Getty Images)

7 min

The recession warnings began in early 2022, when inflation was surging, the economy was shrinking and consumers were feeling glum.

But more than a year in, the long-feared economic downturn still hasn’t materialized. The economy has continued to grow. Inflation is slowing and the unemployment rate is near 50-year lows.

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Yet, fresh data released Thursday shows that economic growth slowed markedly at the beginning of the year, to an annual rate of 1.1 percent from 2.6 percent in the previous quarter.

Could this be the beginning of that slump economists have been talking about for so long?

Experts are divided on whether the country is in for a recession — likely a mild one — or whether it may be able to avoid one altogether in the coming months. Many say we’re at a pivotal moment, as we wait to see just how dramatically the Federal Reserve’s interest rate increases will ripple through the economy.

U.S. economic growth slowed to annual rate of 1.1% in early 2023, triggering new recession fears

“We’ve been hearing ‘A recession is coming, a recession is coming’ for so long, but we’re finally getting to the moment of truth,” said Claudia Sahm, an economist who worked at the Federal Reserve Board for 12 years. “It’s clear things are slowing. The Fed has done a lot, government stimulus is over, basically all pandemic relief programs are done. Are we going to pull this off? Or is the slowdown going to turn into something worse?”

“If we do go into recession,” she added, “it would be the most forecasted recession, ever.”

Why has it been so difficult for economists to get a handle on what’s happening? Here are four factors muddling the outlook.