Here’s how the US economy could start to weaken

Here’s how the US economy could start to weaken

A version of this story first appeared in the CNN Business Before the Bell newsletter. Not a subscriber? You can subscribe here. You can listen to the audio version of the newsletter by clicking on the same link.

Welcome to the economic version of the chicken-or-the-egg dilemma: With interest rates at their highest levels in 22 years, what might weaken first? Labor market or spending?

When people spend less, companies have less money to pay employees, and can start laying off employees as their profits shrink. When companies reduce their headcount, people have less money to spend.

This year, consumers continued to spend and businesses continued to hire.

But economists can’t agree on why: Some argue that the strong labor market has been spurring strong consumer spending, while others say that employers have been able to hire at a strong rate precisely because of strong consumer demand.

Consumer spending represents about 70% of US economic output, so it is key in measuring the health and direction of the US economy.

There are a lot of nuances that make it difficult to determine whether spending or hiring will weaken first, such as the effects of the pandemic-induced savings that some (mostly high-income) Americans may still have, the ongoing pent-up demand for some goods and services, and the extent to which… Economic economics. Conditions vary from one business cycle to another.

Functions argument: “It’s a bit of a tough question,” Shannon Seery, an economist at Wells Fargo, told CNN. “It’s never been ideal, but I think the first shoe to drop is on the business side.”

The US labor market clearly slowed from its rapid pace in 2021 and 2022, having risen from the depths of the pandemic, but it remains healthy.

Employers added 150,000 jobs in October, a gain well below the 297,000 jobs in September, but well above the minimum number of jobs needed to keep up with population growth — somewhere between 70,000 and 100,000. Unemployment remains low, and job opportunities remain at historically high levels.

“A labor market moderation can cause incomes to slow and consumers to become less confident in their employment situation, which typically affects spending, and as demand slows, there will be layoffs,” Siri said.

Spending argument: But there have been instances of weak spending before the labor market.

The first downfall that led to the Great Recession in 2008 was actually the housing crisis and its impact on spending, according to Luke Tilley, chief economist at Wilmington Trust Investment Advisory.

“It’s a chicken-and-egg story that can vary from cycle to cycle,” Tilly said. “During that period, consumer spending was largely driven by home stocks, and then by mid-2006 it was on a downward trend.”

Companies didn’t start shedding jobs on a sustained basis until early 2008, which is when the recession officially began, according to the National Bureau of Economic Research.

The US economy is very different this time around as it is still dealing with the fallout from the massive disruption caused by the Covid-19 pandemic.

In response to a question from CNN on Wednesday, Federal Reserve Chairman Jerome Powell said in a press conference that there is still a “reversal of the effects of the pandemic,” which is “what makes this cycle unique.”

This time, “companies facing a tougher environment will cut jobs, and then there will be spending cuts,” Tilley said.

The Federal Reserve has raised interest rates 11 times since March 2022 to their highest level in 22 years in an attempt to combat high inflation. This has not only made borrowing more expensive for US consumers, but also for businesses.

When companies expand operations or purchase equipment, they often do so on credit. This means that higher interest rates are certainly putting pressure on companies, but it is still unclear how long it will take until they start cutting back on workers in a more significant way as they try to protect their bottom lines.

How perception can play a role: The first lever to pull may not be spending or layoffs.

“I think it starts with the perception of the labor market,” Drew Matos, chief market strategist at MetLife Investment Management, told CNN. “If consumers see that vacancies in their departments are not being filled, it makes them think that the job market is actually weakening, and that every company is probably doing the same.”

The perception that the job market is faltering “prompts people to increase their savings rate a little, put more money away for the rainy day, and when everyone does that, it creates the rainy day they are preparing for.” He added.

Taylor Swift and Beyonce’s concerts generated record profits for Live Nation

Live Nation Entertainment is credited with propelling Taylor Swift and Beyoncé to their strongest quarterly results yet, my colleague Pareja Cavellanes reports.

The parent company of Ticketmaster, which drew the ire of Swifties and lawmakers after ticket sales for the wildly successful Taylor Swift Eras Tour failed, on Thursday reported third-quarter 2023 revenue of $8.3 billion, up 32% from last year.

“Today we had our strongest quarter ever and are on pace for a record 2023,” Live Nation CEO Michael Rapinoe said in a statement.

The ticket maker giant said it has sold a record 140 million tickets so far this year, up 17% year-on-year and has already surpassed 121 million tickets sold in all of 2022. She said concert revenues jumped 32% to $7 billion.

Ticketmaster has sold 257 million fee-based tickets so far this year, an increase of 22% year-over-year. In the third quarter, Ticketmaster sales rose 57% to $833 million and 90 million fee tickets were sold in the period.

Live concerts are certainly back with a vengeance in 2023, with Taylor Swift and Beyoncé becoming the hottest tickets in town. But a slew of stars took to the road this year, including Pink, Harry Styles, Bad Bunny, the Jonas Brothers and Bruce Springsteen.
Live Nation (LYV) expects 2024 to be equally strong for live concerts, saying that about half of shows booked for next year are for large venues and that the trend is up by double digits from the previous year.

the next

Monday: Earnings from Ryanair and Goodyear. Federal Reserve Governor Lisa Cook delivers her remarks. China’s customs agency announces the country’s trade surplus in October. The Reserve Bank of Australia announces its latest monetary policy decision.

Tuesday: Profits of Uber, Occidental Petroleum, KKR, The Carlyle Group, and Robinhood. The US Department of Commerce publishes September data on exports and imports. Federal Reserve officials Michael Barr, Jeffrey Schmid, Christopher Waller, John Williams, and Lori Logan delivered remarks.

Wednesday: Profits from Biogen, Warner Bros. Discovery, Roblox, Teva Pharma, Ralph Lauren, The New York Times Company, Under Armour, SeaWorld, Steve Madden, MGM Resorts, U-Haul, Duolingo, Affirm, and Lyft. Federal Reserve Chairman Jerome Powell delivers a speech. Federal Reserve officials John Williams, Michael Barr and Philip Jefferson deliver remarks. China’s National Bureau of Statistics releases October inflation figures.

Thursday: Earnings of Sony Group, AstraZeneca, Brookfield, Tapestry and News Corp. The US Department of Labor announced the number of new applications for unemployment benefits in the week ending November 4. Federal Reserve Chairman Jerome Powell delivers a speech. Fed officials Raphael Bostic and Tom Barkin deliver their remarks.

Friday: Earnings from Soho House. The UK Office for National Statistics releases GDP data for the third quarter. European Central Bank President Christine Lagarde delivers a speech. Federal Reserve officials Raphael Bostic and Lori Logan deliver their remarks. The University of Michigan releases its preliminary consumer confidence reading in November.

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