An Economy on the Edge?

Corporate leaders in offices across the United States are closely watching a trio of economic data points this week, looking for an answer to a complex question: Is this the start of a downturn?

Certainly, the hand wringing is picking up. On Wednesday, for example, the Federal Reserve cut interest rates by a quarter percentage point—the first reduction in 11 years—because it’s worried about how the U.S. economy is being impacted by a global slowdown. Other analysts cite slowing global growth and trade issues that are prompting leaders cautious corporate spending and investments. “What we are hearing from clients and in earnings calls is increased discipline coupled with a commitment to spend to meet strong consumer demand and technology needs,” says Scott Macfarlane, a vice president of client development with Korn Ferry.

Storm clouds have been gathering over the economy for months now. But strong consumer confidence has defied the data and propelled the stock market in recent months, as evidenced by second-quarter earnings reports from the major US investment banks, where consumer-facing divisions drove revenue and profits. But data released Tuesday shows that consumer spending slowed further in June, the third consecutive monthly decline.

Ben Frost, a solution architect in Korn Ferry’s Product business, says the latest economic data, combined with more slack in the job market when July figures are released Friday, could be a sign of things to come. To be sure, forecasts estimate that Friday’s report will show around 166,000 jobs were added in July, down from 224,000 in June. Frost says, however, that if a downturn is imminent, “it won’t be an across-the-board story that plays out the same way everywhere.”

Industrial companies, for instance, are feeling the trade situation differently than banks. Disruption around the supply chain is hurting manufacturing jobs, and organizations are managing costs around core corporate functions and operations. Manufacturing job growth has essentially been flat for about a year, according to Bureau of Labor Statistics.

At the same time, organizations are still investing in digital, IT, and sales talent to drive growth. Tech unemployment, for example, is at 1.3%, nearly 2 percentage points lower than the rate for the entire economy. Macfarlane says if barriers around trade fall, geopolitical tension deescalates, and a definitive move is made one way or another around an interest-rate cut, the current cautious trend could reverse. “This could be the start of a downturn—or will we go on another run if those obstacles disappear?” he asks.