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Home » Tatiana Bailey: Economic red flags and demographic headwinds could signal a recession ahead – Colorado Springs Gazette

Tatiana Bailey: Economic red flags and demographic headwinds could signal a recession ahead – Colorado Springs Gazette

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Tatiana Bailey, director of the University of Colorado at Colorado Springs Economic Forum. COURTESY PHOTO

Tatiana Bailey, director of the University of Colorado at Colorado Springs Economic Forum. COURTESY PHOTO
Editor’s note: Tatiana Bailey is director of the University of Colorado at Colorado Springs Economic Forum. This is the second of two parts.
Last week, I talked about the record 11.3 million job openings in the U.S., and I juxtaposed that to the 6 million unemployed people. Doing the simple math, that leaves 5.3 million job openings with little-to-no prospect of ever being filled primarily due to aging demographics and declining fertility rates that started in the 1970s, which are now catching up to us.
And even if all employees who left the labor force during the pandemic returned, that would only add about 1.5 million workers, which would leave about 4 million job openings without available bodies to fill them. This doesn’t take into account the skills gap and the simple fact that we are not adequately training people for today’s jobs.
In fact, in a March survey conducted by the National Federation of Independent Businesses, half of the employers who responded said they cannot fill job openings, while an astounding 92% of respondents said they cannot find qualified people for their open positions.
I’ve always focused on workforce because if businesses can find the labor they need and workers can find jobs that match their skills with livable wages, just about everything in an economy can work. In fact, it can thrive with solid, globally competitive business growth alongside solid high-quality jobs. You have a virtuous cycle of production and consumption.
Our current demographic headwind, however, truly threatens that virtuous cycle because jobs are the essential cog of the wheel. The demographic challenges also are a central theme in why I am concerned about a recession in the next 12 months or so.
By itself, this headwind is likely to cause anemic, long-term growth rates. But now we also have a plethora of factors that significantly increase the risk of two or more consecutive quarters of negative economic output, or gross domestic product, which is how a recession is technically defined.
Let’s take inventory.
Besides the acute shortage of workers, we’ve seen the highest and most broad-based inflation in 40 years. Last week’s release of  consumer price index data by the U.S. Bureau of Labor Statistics showed inflation in March rose 8.5% on a year-over-year basis. The producer price index, which measures the inflation rate of producers or businesses, has increased 11.2% year over year. The producer price index is typically a good predictor of inflation that’s yet to come, which is another reason I’m skittish about the economy. The U.S. Census Bureau’s latest Small Business Pulse Survey for the seven-day period ending April 3 showed that nearly 45% of domestic suppliers are still experiencing delays, which further cements the notion of restricted supply and increasing prices.
Combined, these factors have eroded business and consumer confidence to disturbingly low levels (see charts 1 and 2). For businesses, profit margins are squeezed. For consumers, even with some of the highest wage increases in decades, inflation-adjusted wages are down 2.7% year over year. This lack of confidence is spilling over to consumption decisions in what economists call demand destruction (see 3rd chart).
The COVID shutdown in parts of China, from which the U.S. imports a lot of its goods, does not help the inflationary situation nor does the horrific Ukrainian war. I don’t see the latter abating anytime soon as Russia continues to have a source of financing that war with many oil-dependent countries feeding Russia over $1 billion per day.
The continuation of the Ukrainian war virtually guarantees sustained inflation in food and energy. In fact, a global slowdown is a concerning notion as I watch the “record-level inflation” headlines across a growing number of developed and developing nations, particularly in the staples of food and energy.
To tame inflation, the Federal Reserve might very well raise interest rates by half a percentage point in May and again in June. That always slows down economic growth — and often by a bit too much.
Inflation and interest rate hikes are causing the dreaded inversion between short and long-term yields in government securities, which usually must be sustained to accurately predict a recession. At a minimum, however, any inversion signals doubt about future economic growth .
I was on a monthly call recently with other economists and investors as part of a governor’s appointed council. At the end of the call, the governor’s lead economist asked everyone’s opinion on the probability of a recession.
I’d say over 50% of the drippy economists in the room — myself included — said a recession is likely.
My two cents: when you have this many headwinds, the sheer probability of one or more tipping us over to a downturn is higher. Or, the simple interaction of these negative influences can create an aura of uncertainty for businesses and consumers that is sufficient to bring the economy to a pause.
In this instance, I hope that Colorado weather forecasters in the spring are better at predictions than I am.
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