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Here’s how America’s economy could begin to weaken

today 11/06/2023
Here's how American economy could begin to weaken Which will weaken first: the job market or spending? This is the question at hand as interest rates reach their highest level in 22 years. When spending decreases, companies have less money to pay their employees and may start laying off workers. Conversely, when companies cut staff, individuals have less money to spend. Despite this, consumers have continued spending and businesses have continued hiring. Economists are divided on the reasons behind this trend, with some attributing it to a strong job market driving consumer spending, while others believe that strong consumer demand has allowed employers to hire at a steady pace. Consumer spending is crucial in assessing the health and direction of the US economy, as it accounts for approximately 70% of economic output. Various factors make it difficult to determine whether spending or hiring will weaken first, such as the impact of pandemic savings, pent-up demand, and economic circumstances specific to each business cycle. Some economists argue that the labor market will be the first to decline, while others point to instances in which spending weakened before job market downturns. The US economy's current situation is unique due to the ongoing effects of the Covid-19 pandemic. The Federal Reserve's 11 interest rate hikes since March 2022 have made borrowing more expensive for both consumers and businesses. Although higher interest rates are squeezing businesses, it remains uncertain when they will significantly reduce labor to protect their bottom line. Perception of the labor market could also play a role, as consumers may increase their savings rate if they perceive a weakening job market. Ultimately, it is unclear whether spending or layoffs will be the first to weaken.
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