Recession Signals Sound as Credit, Labor Markets Weaken

Labor market conditions and consumer credit are weakening significantly, indicating recessionary pressures are hitting the United States.

The Federal Reserve released a report on the job market, and saw that conditions for workers have worsened significantly, falling to -2.4 from -0.8 in January. That tripling of the negative read was a significant surprise, as the Fed expected steady improvement in the job market after it raised borrowing costs on Americans in December by raising its Fed funds target.

Labor market conditions and consumer credit are weakening significantly, indicating recessionary pressures are hitting the United States.

The Federal Reserve released a report on the job market, and saw that conditions for workers have worsened significantly, falling to -2.4 from -0.8 in January. That tripling of the negative read was a significant surprise, as the Fed expected steady improvement in the job market after it raised borrowing costs on Americans in December by raising its Fed funds target.

While the Fed saw payroll growth and emphasized a marginal gain in the labor force participation rate, it also acknowledged that real hourly earnings are falling for Americans, and total work hours are on the decline. The Fed also admitted that hard to get jobs fell, meaning that the labor force may be losing good, high paying jobs in exchange for lower wage jobs that are artificially lowering the unemployment rate, currently at 4.9%.

In reality, many Americans may be employed at a lower income and desperate for the wages they used to enjoy.

Many are calling the results a “surprise,” and asserting the Federal Reserve is unlikely to raise interest rates further in their upcoming March meeting. The stock market reacted with major indices falling in the day on news of weak jobs, but rose later as some speculators saw demand for stocks rising on a protraction of the Fed’s easy money policy.

Less Credit Usage

With Americans making less money, there is also a trend towards less credit usage. With weaker purchasing power, more job insecurity, higher home prices, and deflationary headwinds, Americans are finding less reason to apply for mortgages and auto loans.

That is the result of the recent January Consumer Credit report by the Federal Reserve, which saw credit rising by $10.5 billion in January, far less than the $16.5 billion expected. The Fed also saw revolving debt fall by 1.3% in January 2016. This trend may indicate that Americans may be less confident in their ability to afford making big purchases with plastic, and fear ever-tougher bankruptcy laws that make credit card debt and wage garnishment unavoidable in the case of a lost job or medical emergency.

Meanwhile, interest rates on credit card debt have risen to 12.22%, up from a low of 11.87% in 2014.

Falling credit card debt may be an indication of weak retail activity and falling demand for goods and services in the consumer-driven economy, again sparking an ongoing debate about the threat of a deflationary spiral similar to the one affecting Japan since the 1990s and impacting the Eurozone in the last year.

Nonetheless, Federal Reserve Vice Chairman Stanley Fischer said in a speech today that we are seeing inflation “stirring” and that higher interest rates may be coming quickly. Countering that, Federal Reserve Governor Lael Brainard said that the Fed would need to put a “high premium on clear evidence that inflation is moving higher,” hinting that the Fed should be more aware of weakening demand and incomes affecting American consumers.