Even if America avoids a recession, states that Donald Trump needs to win in 2020 are already struggling
hard to know when isolated announcements become something more. Since last November General Motors has cut several thousand factory jobs at plants across the Midwest. In early AugustSteel said it would lay off 200 workers in Michigan. Sales of camper vans dropped by 23% in the 12 months ending in July, threatening the livelihoods of thousands of workers in Indiana, where many are made. Factory workers are not the only ones on edge.
But most recessions follow a cycle of tightening monetary policy, during which the Federal Reserve raises interest rates in order to prevent inflation from running too high. The first rumblings of downturns usually appear in areas in which growth depends heavily on the availability of affordable credit. Housing is often among the first sectors to wobble; as rates on mortgages go up, this chokes off new housing demand.
Things may yet turn around. The Fed reduced its main interest rate in July and could cut again in September. If buyers respond quickly it could give builders and the economy a lift. But housing is not the only warning sign. Manufacturing activity also tends to falter before other parts of an economy. When interest-rate increases push up the value of the dollar, exporters’ competitiveness in foreign markets suffers. Durable goods like cars or appliances pile up when credit is costlier.
In some sectors, technological change makes it difficult to interpret the data. Soaring employment in oil industries used to be a bad sign for the American economy, since hiring in the sector tended to accompany consumer-crushing spikes in oil prices. But America now produces almost as much oil as it consumes, thanks to the shale-oil revolution. A recent fall in employment and hours in oil extraction may be a bad omen rather than a good one.
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