HEATHER LONG: Do the math. Recession risks add up.
When I saw the stock market rout in recent days, I was relieved. The big dip did two things that were much needed: First, it took some craziness out of the market. The “magnificent seven” tech stocks needed a reality check on their valuations, and they got it. Second, the big dip pretty much guarantees the
Is
What's really going on is the economy is slowing down to a walk after years of sprinting. It's hard to judge slowdown situations. Everyone is trying to figure out whether the economy is moderating to a normal walking pace, an Olympic speed-walking gait or something that looks a lot like a hobble. People can feel the deceleration. There aren't as many “we're hiring” signs around, and discounts are back everywhere from McDonald's to
This is a different economy from the one we had a year ago. In 2023, consumption (adjusted for inflation) was averaging 2.75% growth. So far this year, that's cooled to a 1.9% pace. That's just below the historical norm, but it feels weak after the post-pandemic boom. It's a similar story in the labor market. Unemployment is up (4.3% now versus 3.5% a year ago), and it's taking longer for people laid off to find jobs. While unemployment remains low by historical standards, it's noticeable that 1 million more people are out of work now than a year ago. Another factor to watch is the “diffusion index” that looks at what percentage of 250 industries are hiring. Last summer that index was hovering around 60%, indicating broad-based job growth. This July, it fell below 50% for the first time since spring 2020, a signal of how little hiring is occurring outside of health care and government.
On
What happens next depends on the
Lower rates will also offer relief to the many maxed-out credit card borrowers.
Comparing the past week to the 1987 stock market crash is overblown. But the slowdown — and recession risk — are real.


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