Reuters just reported that U.S. Treasury Secretary Janet Yellen on Monday said she saw a path for avoiding a U.S. recession, with inflation coming down significantly and the economy remaining strong, given the strength of the U.S. labor market.
"You don't have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years," Yellen told ABC's Good Morning America program.
Why is she being optimistic about a so-called soft landing for our economy? It would raise the importance of our annual State of the Union report that President Biden will present to Congress and Americans on Tuesday.
It’s not only the incredibly strong unemployment report, but service sector businesses that employ most Americans as measured by the Institute for Supply Management (ISM) Non-manufacturing Index soared in January from its December lows; another huge surprise.
It’s as if Americans have changed their minds en masse about the possibility of a recession in January. And that could mean a much better performing ‘state of the union’ this year.
“Ten industries reported growth in January,” said Anthony Nieves, Chair of the Institute for Supply Management®, “according to the Services PMI®, which was in expansion territory after a single month of contraction and the prior 30-month period of growth. The composite index has indicated expansion for all but three of the previous 155 months.”
And former Treasury Secretary Larry Summers is also tapering his hawkishness and seeing the possibility of a better future for the U.S. economy.
Summers said on Fareed Zakaria’s GPS Sunday that it “looks more possible that we’ll have a soft landing than it did a few months ago,” but he has continued fears about inflation indicators that have come back to earth, but are still too high for his liking.
“They’re still unimaginably high from the perspective of two or three years ago, and that getting the rest of the way back to target inflation may still prove to be quite difficult,” Summers said.
The manufacturing sector hasn’t done so well per the ISM Manufacturing Index. Economic activity in the manufacturing sector contracted in January for the third consecutive month following a 28-month period of growth, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.
The report was issued today by Timothy R. Fiore, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:
“The January Manufacturing PMI® registered 47.4 percent, 1 percentage point lower than the seasonally adjusted 48.4 percent recorded in December. Regarding the overall economy, this figure indicates a second month of contraction after a 30-month period of expansion.”
Why has manufacturing activity contracted? It seems to have been most affected by higher prices for raw materials, or, “due to buyer and supplier disagreements regarding price levels,” in Fiore’s words.
So more economists are lining up behind the inflation doves, who see inflation as a temporary phenomenon, with consumers’ longer term inflation expectations continuing to be “well-anchored” around 3 percent.
Maybe that’s why the Fed raised the overnight interest rate it charges banks just a quarter-percent to 4.5 percent, and why it bespeaks a better state of our union.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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