Financial analyst Gary Shilling, renowned for accurately predicting the 2007-2008 financial crisis and its roots in the subprime mortgage loan market collapse, says the U.S. economy still faces the potential of a deferred recession. Evidence indicating the U.S. labor market may be cooling is at the core of his concern.
According to Shilling, the labor market’s accelerated bounce-back post-pandemic allowed the U.S. to largely avoid a potential recession last year, however, the economic pain may have just been delayed.
“You haven’t had that weakness in labor markets that, I think, you normally would have had and would have [caused] a recession [in 2023],” Shilling said in an interview with CNBC. He added: “That doesn’t mean we won’t have one, but it means whatever it is, it’s delayed.”
Shilling warned that he’s already seeing “preliminary signs of weakness” in the labor market, suggesting a recession-inducing slowdown could be imminent. The financial analyst is especially concerned about indicators showing a decrease in wage gains, rising rates of quits, and service inflation.
“It’s the service inflation [that] really is a difficulty for the Fed, and if you look at wages in the service area, they’re rising 5 percent or 6 percent year over year,” Shilling noted before adding: “Now that’s hardly commensurate with the Fed’s target of 2 percent inflation.”
The concerns raised by Shilling have been echoed in recent economic data. Over the last two months, the PPI and PCE indexes have suggested a potential reacceleration in inflation, leaving some analysts to believe the Fed may no longer move toward cutting interest rates this year. Additionally, the March jobs report added to mounting evidence that the labor market has significantly softened, with the economy gaining almost entirely part-time jobs while continuing to shed full-time employment.
