eli5: Why are they telling me that there’s a recession coming when unemployment is low at 3.6 or .9 percent as of this last month?


What the title says.

In: 0

So Imagine you have a toy car. Sometimes, the car goes fast, and sometimes it goes slow. Similarly, the economy, which is like a big machine that makes money for everyone, also goes through ups and downs.

Right now, the unemployment rate tells us how many people don’t have jobs. If it’s low, like 3.6 or 0.9 percent, it means most people have jobs, and that’s a good thing.

But there are other things that experts look at to understand how the economy is doing. They look at how much money people are spending, how much businesses are investing, and how happy people feel about the economy.

Sometimes, even when most people have jobs, the economy can still start to slow down. It’s like the car is going slower, even though it was going fast before. Experts use different signs to figure out if this might happen.

They look at all the information and try to predict if the economy might get worse in the future. They call this a “recession.” It’s like when the car is going really slow or even stops for a while.

So, even if unemployment is low, experts are saying there might be a recession because they see other signs that the economy could slow down. It’s like they see the car might slow down, even though it was going fast before. They want to let people know so that they can prepare and be ready for any changes that might happen.

Just because unemployment is low doesn’t mean there isn’t a recession coming. Recession is more to do with a decline in GDP. You can have an unemployment rate of 0% but still have declining GDP which means recession.

Someone is ALWAYS predicting a recession. This is important. No matter what, someone will always be predicting it.

Economists, and pundits generally don’t make headlines or news or anything when they are predicting things like slight ups and downs, or good times ahead or such. This isn’t interesting. People generally don’t take note of that, because there isn’t anything to do with that info other than keep going.

But predicting a decline is alarming! You could lose everything. In economics and finance, generally you don’t really care about good times any much as near as bad times. In good times you can make money, but in bad times, thats horrible because you could lose it all! Nothing is more frightening or important than that. Making money is cool, but look, you’re fine, but losing it will be the worst thing ever.

In much of this reporting and sentiment as you can see generally focuses on what to do in BAD times, less so thatn what to do in good times. In good times things are normal, but avoiding and predicting bad times makes news because its more impactful

None of this means a recession is coming, it only means that its generally far more interesting to talk of potential disaster than like, minor wins or losses, so voices that talk about it get more play

**tl;dr**: Bad times are much more impactful than good times, so the conversation is rarely tilted towards good and people predicting bad times get a lot of attention, no matter if they are right or wrong

The economy goes up and down. So being up now doesn’t mean you will never go down again.
The economy, especially when it comes to jobs, has been doing well. But maybe too well – growing really fast, as happened when the economy began recovering from the pandemic shock, brought inflation because everyone was suddenly competing for resources whose producers hadn’t caught up yet. Most notably, the “supply chain” – the system that gets things moved where they need to go to make more things, which are then moved again, etc. – was cut way back during the pandemic, so getting supplies again started costing more and more when the economy suddenly snapped back. Inflation is harmful, so the Federal Reserve (“the Fed”), which controls how much money moves around, tried to control it by making it more expensive to borrow money so people would cool down their economic activity. But that can in turn cool things down too much and cause a recession. The Fed tries to do what’s called a “soft landing” and control inflation without going so far as to cause a recession, but that’s hard to do because you can’t know exactly what’s going to happen in advance.

Because [household saving rates are way down](https://www.msn.com/en-us/money/markets/household-savings-collapse-sparks-recession-fears-among-economists/ar-AA1dnjRx).

Because [short-term bonds are paying higher interest rates than long-term bonds](https://www.cnbc.com/2023/07/07/yield-curve-inverted-the-lowest-since-1981-what-it-means-for-yo.html).

Because the amount of US money in circulation is contracting. [This hasn’t happened since the Great Depression.](https://www.msn.com/en-us/money/markets/us-money-supply-is-doing-something-not-seen-since-the-great-depression-and-it-may-signal-a-big-move-to-come-for-stocks/ar-AA1djNEZ)

That’s just off the top of my head, and I’m not even an armchair economist.