Caution Ahead: Wall St. Crash Predictor Highlights Recession Risks

Financial analyst Gary Shilling had some tough words for people across the nation this week, with a dire warning about America’s tardy economy. 

Expert’s Warning

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Despite the Biden administration repeatedly touting the strength of the economy, one expert strongly disagrees – Gary Shilling.

Gary Shilling Predicts Recession Ahead

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In an interview with Newsweek, Shilling claimed that the U.S. is on track for a recession – one that we just narrowly avoided last year.

Shilling’s Forecast

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Shilling believes that a recession could happen “in the next six months or so.”

Accurate Predictions in the Past

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Shilling is most famous for predicting the 2007-2008 Wall Street crash, which led to the Great Recession. Shilling was quoted in 2007 stating that “housing would sink the economy,” and he later predicted a “serious recession” in 2008 – both of which came true.

Historical Insights

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This has given any of Shilling’s financial forecasts a level of legitimacy, with experts regarding his insights as invaluable. They typically turn to his analyses for guidance during periods of economic uncertainty.

Labor Market Signals

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To make his point, Shilling pointed to the recent string of layoffs across the U.S. These, he states, are an indication that the economy is sliding backward and that the labor market is weakening substantially.

Delayed Impact

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In his interview, he explained, “You had a lot of people that were hired before the pandemic, and then, during the pandemic, there was no desire to lay them off. And so, you haven’t had the weakness in labor markets reflected yet.”

Economic Atrophy

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These weaknesses are coming into play now, according to Shilling, who stated, “But if you look at wage increases and other indicators, labor markets are atrophying. I think it’s really just a slow but delayed response.”

Soft Landing Hopes

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While the outlook sounds bleak, Shilling is still relatively optimistic. “Forecast is not a science, but I think conditions are such that, if we avoid a recession, we might end up with a soft landing – maybe.”

What It Means for the Economy

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A soft landing is basically a gradual slowdown in economic growth without a sharp downturn or heavy recession. This helps people and businesses weather the shock, and it would be the best possible outcome if America were to slide into a recession.

A Telltale Sign of Economic Slowdown

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Layoffs have been popping up across the nation in the past few months. Over 190,000 workers at tech companies were laid off in 2023 as the sector saw a continual slowdown.

Various Industries Facing Job Losses

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Just this year, we’ve seen thousands of layoffs in factories throughout Illinois, unemployment statistics creeping up in Connecticut, Washington, and Rhode Island, and announcements by big companies that even more jobs will be gone before the year is through.

Company Layoffs

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Tesla is planning to cut 6000 jobs in Texas and California due to a series of mounting issues within the company. Rival electric vehicle company Rivian is already in its second round of layoffs this year – around 11% of the total workforce has been cut so far. Last year, Rivian laid off around 1000 people.

Tesla, Rivian, General Motors

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General Motors announced over 1000 layoffs just before Christmas due to delays in production and issues with contracts. Student Transportation of America, one of the biggest school bus companies, is letting go of 225 people in Florida out of their 5,000 employees.

A Bad Omen

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For Shilling, all these layoffs are an omen of what’s coming, and they’re bringing with them a weak U.S. economy.

Ripple Effects

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“Obviously if you get enough layoffs, it takes the whole economy down. But so far, it’s been confined to very specific areas, particularly areas where there was huge hiring before the pandemic. A lot of the tech areas have backed off after over-hiring, and now they’re having layoffs,” Shilling explained.

Tech Sector Bubble

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He went on to explain that companies have been keeping staff despite the need for cuts because they went through the hassle of hiring during the pandemic. Now, that dam is beginning to burst, but it’s still not being represented in official figures.

Federal Reserve’s Response

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“And as long as that’s the case, the Federal Reserve is in no rush to cut [interest] rates. I mean, why should they? There’s no evidence that the economy is showing the kind of weakness that would indicate the rate cuts are needed.”

Economic Calamity

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According to Shilling, this is all feeding into a larger calamity, as “the longer that situation lasts, the longer it’s going to be before you have any rate cuts, and the more likely it is the economy is going to slip.”

Cautionary Words

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Whether his predictions will come true remains to be seen, but it’s crucial to remember that although his warnings may sound dire, he’s still holding out hope for a soft landing. Let’s keep an eye on how things unfold in the coming months.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.

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