Last week’s economic data confirmed a 4-month trend of significantly weaker employment data. Next, we need to watch for spending data, and of course, inflation data this week. If or when consumer spending slows, that would increase the chances of recession starting in the near term.

This period differs from 2022/2023 when the Fed raised rates to fight inflation. The concern was that higher interest rates would bring on a recession. During that time, however, employment gains remained robust as wages were increasing, and consumer spending growth never slowed down. Today we are seeing employment growth stall with much slower wage growth. While layoffs remain sanguine, monthly average job growth over the past 6 months has dropped to 64,167 compared to the last 12-month average of 122,000. It’s a ‘no hire/no fire’ period currently.

The market seems to be focusing on lower interest rates and while stock price momentum has declined, we are still moving up. Third quarter earnings were very robust at over 11% growth. Large tech stocks are still doing most of the heavy lifting.

Inflation data comes late this week. A great deal of the inflation discussion revolves around whether tariffs can/are/or will lift inflation numbers. The consensus is that it will, but only perhaps add 1% to the rate of inflation over the next year. 4% to 4.5% inflation would not be helpful in a scenario where wage growth has slowed.

So, we are left with a couple of opposing ideas. If the economy is slowing down, why is the stock market doing so well? If inflation might be 4.5%, why is the Fed lowering rates? We will have to wait to not only see which way the economic data breaks, but also the market’s reaction.