If you love puzzles, this is the economy for you. The data are so mixed, even the experts are stumped. Gross domestic product has expanded at an average annual pace of just 1% over the past five quarters, less than half the rate seen in the last economic expansion. Recession warnings abound, as do layoff announcements by well-known companies, from Goldman Sachs Group Inc. to Best Buy Co.
Yet the labor market remains robust. Companies took on 339,000 new workers in May, more than triple the increase many economists reckon is consistent with an economy that’s neither too hot nor too cold. It was the 14th straight month the increase in payrolls exceeded expectations.
To make sense of it all, it helps to focus on the four p’s: payrolls, productivity, profits and prices. Their interaction helps describe where the economy is—and where it may be headed. The message in the data: Barring a credit crunch from the recent banking industry turmoil, the US may well dodge a recession. Yet it could end up in an unsatisfactory equilibrium between anemic growth and still-elevated inflation. Then it will be up to Federal Reserve Chairman Jerome Powell and his colleagues to decide whether that’s good or bad. Can they live with an inflation rate above their 2% target, or will they feel compelled to drive unemployment up to bring price pressures to heel?
