Economist: Slowdown across U.S. economy inevitable

Dan North

For economist Dan North, there’s no denying the obvious: With the exception of a few bright spots, key indicators point to a substantial diminishing of the U.S. economy in 2024.

“Let’s call it a slowdown because we’re not actually calling for a recession this year,” said North, senior economist at Allianz Trade, at the recent FMA Annual Meeting in Clearwater Beach, Fla. “We’re calling for a pretty sharp slowdown.”

North led his keynote speech with the highlights: consumer spending (which rose by 3.2% in the latest data he cited) and the national unemployment rate (which was 3.7% at the time but currently sits at 3.9%). In addition, personal income rose by 4.2% year over year in December, and the service sector, which represents 80% of the American economy, is still in expansion mode, North noted. Those are nice numbers, but two things—the yawning gap between wage increases and inflation, plus the Federal Reserve Board’s response to that gap in its overnight lending rate hikes—overshadow all of it.

“I mean, what else do you want—[those are] some pretty good positives there,” North said, tongue firmly in cheek. “But we do have some problems as well, and they’re centered around inflation—more particularly, the Fed’s cure for inflation. And, in particular, how it is damaging the housing market, manufacturing, the freight sector, and the labor market.”

Housing Crisis

Immediately post-COVID, the Fed claimed that the sharp quarterly spikes in inflation were transitory and that supply chain and labor shortages were to blame. When it finally came around to admitting in December 2021 that those spikes were not transitory, financial markets took the signal and began hiking 30-year mortgage rates, which quickly more than doubled from around 3% to more than 7%.

And while interest rates jumped, housing prices positively skyrocketed and still stand at 50% higher than they were pre-COVID. And because mortgage rate movement usually lags behind the Fed’s moves, high mortgage rates are here to stay for a while.

“So now you’ve got really high mortgages and really high housing prices,” North said. “You mix those two together, you get the Affordability Index, [which] takes into account both of those … at a 38-year low. And this is one of the reasons why it’s going to be hard for the housing market to recover.

“In addition, that 30-year rate is not going to come down very fast. It’s a sticky, sticky interest rate.”

Manufacturing Down

With the manufacturing sector’s flagging index numbers, North didn’t mince words.

“Manufacturing, which of course is interest rate-sensitive, has I think fallen into recession by the measures I look at,” North said, especially noting the 21% drop in durable goods orders since one year ago.

North emphasized the latest Institute for Supply Management’s Manufacturing Index, which stood at 47.4 (less than 50 means contraction) at the conference, while new orders came in at a 47.1 reading.

“It [the latest data] tends to indicate over the next few months that manufacturing’s got a little ways to go to recovery—and manufacturing is related to freight.”

Freight Fright

And speaking of freight, at the end of last year, trucking expenditures had fallen by 24%. History is important here, North said, because since 2000, the other three times that trucking expenditures have taken a similar dive, it always coincided with an actual recession.

“And here’s where we are now, almost at a record [low] level,” North said, alluding to the latest figures. “Freight has been suffering.”

Labor Lapse

As for the labor market, yes, the economy has added jobs consistently over the past two years, but the rate of job growth has nosedived from 5.2% in February 2022 to 1.9% in January of this year. The number of job openings, long pointed to as a positive, have declined by 13% year over year in the most recent figures.

“This is typically what you see as you head into an economic slowdown—the growth rate and job creation start falling off pretty rapidly,” North said. “That’s what’s happening now.”

Another key marker is growth of temporary jobs, huge drops in which also foretell recessions, historically.

“Now we’re way negative again, and it makes perfect sense—temp jobs are the first ones to go, right?” North said.