What’s Actually Different This Time?

Posted by Jeffrey J. Roach, PhD, Chief Economist

Wednesday, November 8, 2023

Key Takeaways:

  • The number of individuals experiencing long-term unemployment is back down to pre-pandemic levels, indicating a market functioning like it did before the pandemic.
  • A growing number of individuals are holding multiple jobs as rising costs of living put increasing pressure on households.
  • Small businesses expect lower real sales in the next six months as the economy slows. See chart below.
  • Despite the headwinds, the economy grew above trend last quarter but this growth path is not likely sustainable.

What is Different This Time Around?

The historic shutdown and reopening of the economy continues to torque financial markets and analyst expectations. This was a key point made by this week’s speech by Neel Kashkari, the president of the Minneapolis Fed and the most hawkish voting member of the Federal Open Market Committee (FOMC). Relationships that traditionally explained what was happening to the economy appear to be severed. For example, hybrid work opportunities seem to have structurally changed the labor market, so traditional models that relate metrics such as the unemployment rate to inflation could be less helpful. Due to the hybrid option, households are less inclined to consider where they work for where they live.

We have also seen that the economy has been less sensitive to interest rates. Many households took cash out from their home equity and can thereby, skirt the credit markets and avoid the pressure from higher borrowing costs.

So What Does this Mean?

One possible scenario is an economy that slows and potentially dips into recession yet the unemployment rate might stay lower than normal given the anomalies in the labor market. The unemployment rate is still historically low yet we see some emerging concerns such as a high number of individuals holding multiple jobs. In October, 5.2% of those employed were working more than one job and that’s likely due to households feeling the pressure from higher costs of living. Holding more than one job is a way to handle higher prices.

Because of these abnormalities, businesses find it difficult to manage inventories and find qualified workers. Practically, we see firms becoming more cautious about future revenues. Most small businesses expect real sales to be lower in the next six months as illustrated in the chart below. Investors could expect an increasing number of firms to lower guidance as sale projections weaken. One positive consequence is markets will expect the Fed to stop raising rates and eventually cut rates in the next 12 months.

View enlarged chart


Most small businesses expect real sales to decline over the next six months as the economy slows. The rising number of individuals suffering from long-term unemployment implies that consumer spending will slow in the coming quarters. Despite the headwinds in the U.S., we think domestic markets pose a relatively lower risk than international markets.


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