Currently, from the outside, the economy appears to be functioning well. GDP growth in the last two quarters exceeded 3%. The labor market is cooling slightly, but without dramatic changes – the unemployment rate is 4.4%, which is still a historically low level, despite the decline in the number of new jobs. But beneath this apparent stability lie potentially serious problems. And instead of ignoring them in favor of general indicators, it is better to name them explicitly.
Large industries such as housing and catering are starting to look alarming – and may be a harbinger of problems for the entire economy. Understanding which sectors are already holding back can help predict the scale of recession risk.
The problem with relying solely on overall data is that the statistics look stable—until they suddenly crash. This may be the case, for example, in the labor market: the consensus usually assumes a slow, gradual increase in unemployment. In practice, however, recessions rarely develop linearly – more often there is a sudden acceleration in unemployment growth and a domino effect. Instead of a slow increase of 0.1 percentage point. per month, unemployment may jump by 0.2 points in one month and by another 0.3 points in the next. It is difficult to predict the moment when the labor market will move from mild changes to a sudden collapse. And experts often notice this moment only when it is too late.
Therefore, when forecasting the future of the economy, it is worth looking “under the hood”. And the picture there looks more and more disturbing. And it's not just about isolated analyzes – even US Treasury Secretary Scott Bessent recently admitted that parts of the economy are already in recession.
“I think overall we are in good shape, but there are sectors of the economy that are already in recession.” — he said in an interview with CNN in early November.
Bessent didn't specify which industries he sees as problematic, but a closer look shows that the worst signs are in four large employment sectors:
1. Residential real estate
There are many indications that employment in the housing construction industry will soon begin to decline rapidly. The large number of unsold homes means that developers are limiting new construction and focusing on selling existing ones. The number of new building permits is also falling, which portends a further decline in activity. In this situation, the industry seems to be maintaining more workers than it currently needs.
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2. Commercial real estate
GDP data shows that investment in commercial construction is falling for the sixth quarter in a row – even taking into account the boom in the construction of data centers for artificial intelligence. The AIA Architectural Orders Index, a leading indicator of construction activity, also remains weak. The signal is clear: there will be no rebound in commercial construction in the near future.
3. Gastronomy
In recent quarters, large restaurant chains such as Chipotle and Sweetgreen have begun to report slowing sales growth – mainly among younger customers, aged 25-34. Companies are trying to pass on higher food costs to consumers, but margins are suffering. Declining productivity per employee indicates that restaurants are employing too many people – which is usually a precursor to downsizing.
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4. Public administration
The largest cuts so far have hit the federal sector. But now Covid measures are running out at the state and local government levels, too — meaning public sector layoffs are increasingly likely.
Apart from key sectors, problems are also visible in smaller industries:
5. Transport and logistics
Less and less goods are being transported: the number of ships from Asia to the US has fallen by 30%, rail transport by 6%, and the trucking sector continues to shrink. Less cargo means less work – and less employment.
6. Mining and raw materials industry
Oil prices are too low to make it profitable to drill new wells, and lumber prices do not compensate for the costs of sawmills – so there will be no increase in employment in these industries.
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7. Higher education
Declining student numbers, budget cuts and less federal funding for research are leading universities to cut jobs. Employment in the higher education sector has stopped growing — and further decline seems inevitable.
The weakening of these sectors increases the risk that layoffs will increase in the coming quarters. With low job openings, even a small increase in layoffs can sharply raise unemployment levels – triggering a downward spiral in consumption and deepening the recession.
While the U.S. economy looks stable from a macroeconomic perspective, turbulence is brewing beneath the surface — and may soon surface.
Neil Dutta is head of economics at Renaissance Macro Research.
The text is a translation from German Business Insider
