The Economist UK - 31.08.2019

The EconomistAugust 31st 2019 33

1

I

t can behard to know when isolated an-

nouncements become something more.

Since last November General Motors has

cut several thousand factory jobs at plants

across the Midwest. In early August us

Steel said it would lay off 200 workers in

Michigan. Sales of camper vans dropped by

23% in the 12 months ending in July, threat-

ening the livelihoods of thousands of

workers in Indiana, where many are made.

Factory workers are not the only ones on

edge. Lowes, a retailer, recently said it

would slash thousands of jobs. Hallibur-

ton, an oil-services firm, is cutting too.

In any given month, even at the height

of a boom, more than 5m Americans leave a

job; nearly 2m are laid off. Most of the time,

however, overall employment grows. But

not all the time. America may or may not be

lurching towards a recession now. For the

time being employment and output con-

tinue to grow. But in the corners of the

economy where trouble often rears its head

earliest, there are disconcerting portents.

Recessions are synchronised declines

in economic activity; weak demand typi-

cally shows up in nearly every sector in an

economy. But some parts of the economic

landscape are more cyclical than others—

that is, they have bigger booms and deeper

slumps. Certain bits tend to crash in the

earliest stages of a downturn whereas oth-

ers weaken later. Every downturn is differ-

ent. Those caused by a spike in oil prices,

for example, progress through an economy

in a different way from those precipitated

by financial crises or tax increases.

But most recessions follow a cycle of

tightening monetary policy, during which

the Federal Reserve raises interest rates in

order to prevent inflation from running too

high. The first rumblings of downturns

usually appear in areas in which growth de-

pends heavily on the availability of afford-

able credit. Housing is often among the

first sectors to wobble; as rates on mort-

gages go up, this chokes off new housing

demand. In a paper published in 2007 Ed-

ward Leamer, an economist at the Univer-

sity of California, Los Angeles, declared

simply that “housing is the business cycle”.

Recent history agrees.

Residential investment in America be-

gan to drop two years before the start of the

Great Recession, and employment in the

industry peaked in April 2006. Conditions

in housing markets were rather exception-

al at the time. But in the downturn before

that, typically associated with the implo-

sion of the dotcom boom, housing also

sounded an early alarm. Employment in

residential construction peaked precisely a

year before the start of the downturn. And

now? Residential investment has been

shrinking since the beginning of 2018. Em-

ployment in the housing sector has fallen

since March.

Things may yet turn around. The Fed re-

duced its main interest rate in July and

could cut again in September. If buyers re-

spond quickly it could give builders and

the economy a lift. But housing is not the

only warning sign. Manufacturing activity

also tends to falter before other parts of an

The American economy

Areas of concern

WASHINGTON, DC

Parts of the country are already facing a downturn

United States

34 Real-estate commission

36 The other primary

36 Political merchandise

37 Criminal-justice policy

38 Lexington: The Kochtopus’s garden

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