Is a Recession Likely When Everyone Has a Job?

While economists jawbone about the odds of a recession, a competing narrative suggests this time might be different.

Those of us in the business of forecasting economic conditions know how tricky it is trying to predict the future. For retailers faced with long-term buying decisions, it would be hard to imagine it getting any more nerve-wracking than it is right now. While leading economists jawbone about things like inverted yield curves that historically precede economic downturns, there is a competing narrative that suggests this time might be different.

That dichotomy was on display this week at the Federal Reserve where Chairman Jerome Powell held a press conference and noted what struck me as an extraordinary statistic. In spite of nonfarm employment at a record high of about 154 million people, there are still “four million fewer people available to work than there’s demand for.”

The US, he said, is at or above maximum employment, and (other than the tech sector) “companies are very reluctant to lay people off because it’s been very hard to hire.” That doesn’t sound like a labor market where a lot of people will need to be put out of work.

Furthermore, Powell said the Fed doesn’t see a wage-price spiral developing that would feed inflation. “Wages are just moving sideways at an elevated level, both ECI (employee cost index) and average hourly earnings.”

On the same day, the Ludwig Institute, a nonprofit economic think-tank, reported that American workers “saw an increase in the number of living-wage jobs for November.”

To be fair to the doomsayers, trends in statistics like the University of Michigan Consumer Sentiment index (at a low point), and high total employment have historically coincided with or preceded recessions. But there are profound changes developing in the economy which suggests this time is different.

A year or so ago, with backed-up supply chains and soaring ecommerce demand, companies like Amazon went on a warehouse-building spree. This September, Bloomberg reported that, in the US alone, Amazon is shuttering or killing 42 facilities and delaying another 21 as the ecommerce boom appears to have flattened out.

Instead of warehouses, companies are building factories, a potential source of ongoing living-wage jobs. Credit the pandemic and supply-chain issues for a growing trend in onshoring and reshoring sources. A recent report in, a commercial real estate news service, listed a number of major projects in the works and some promising statistics:

  • New manufacturing construction reached a record in 2022.
  • Honda, Micron Technology, Samsung, Apple’s Taiwan chip supplier, and others have announced plans to invest close to $100 billion in new US manufacturing plants.
  • A recent McKinsey study concluded that “The world will see a once-in-a-lifetime wave of capital spending on physical assets between now and 2027…amounting to roughly $130 trillion.”
  • The day before Chairman Powell’s comments, United Airlines announced plans to buy up to 200 new Boeing jetliners, an investment of more than $30 billion. Airlines are well-known to be recession sensitive. What does Boeing know that the recession hawks might be missing?

The bean counters may be right in the end. A recession may be in the cards. But looking at the economy from the level of boots-on-the-ground (or the average consumer), I’d be hesitant to bet on it being a deep one.