Lakshman Achuthan: No Recession Priced In, Labor Market Slowdown Ahead

Economic Outlook

• 💡 The ECRI's data indicates a continued economic slowdown, potentially more intense, but not an apocalyptic scenario.
• 🎯 Despite positive headlines, objective indicators show the economic slowdown trajectory has not changed.
• ⚠️ The current unease stems from a feeling that the rules of the game are changing, leading to uncertainty.

Recession and Regime Change

• 🚫 ECRI does not foresee a recession, nor did they see one earlier, describing the current state as 'steady as she goes'.
• 🗺️ A perceived 'regime change' in economic rules makes it difficult for current models and thinking to adapt, creating a sense of driving without a map.
• 📈 ECRI's indicators have historically tracked directional moves through significant regime changes since 1907.

Labor Market Dynamics

• 📉 The labor market has not yet cracked, with businesses exhibiting 'labor hoarding' and being reluctant to fire employees.
• ⏳ Post-COVID structural shifts and immigration policies may further tighten the labor market.
• ⚠️ A significant increase in firings would signal a notable shift in business psychology and a potential change in the economic trajectory.

Federal Reserve and Inflation

• 🏦 The Fed faces a difficult path as inflation remains somewhat sticky, and tariffs are still set to impact the economy.
• ❓ There is no clear crisis in the key indicators for the Fed to justify immediate easing measures.