The Human Cost of the 2024 Recession

The United States unemployment rate increased to 4.3% in July. While this could signal an uncertain economy, it shouldn’t cause alarm just yet.

Many economists forecast a slower economy this year without falling into recession due to the typical time lag between changes in monetary policy and their effects on spending, production, and jobs.

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Unemployment Rates

An increase in unemployment rates can be taken as an early indicator that an economic decline may be imminent, with rates typically below 5% representing healthy economies. Since key summer economic reports indicated the job market may be losing strength, investors have begun raising alarm about potential recessionary effects.

Economists’ responses to Bankrate’s latest poll revealed that, amid all of the turmoil, they believe post-pandemic excesses have mostly abated and employment growth should decrease until late 2025 due to falling gross domestic product (GDP) growth. Slowing hiring should keep unemployment from climbing higher than its current levels – though this rule cannot always be followed, since unemployment can rise nonlinearly; such as an abrupt surge following long periods of stability.

Loss of Employment

Recession is often associated with job loss; however, not every increase in unemployment can be directly attributed to layoffs. Recent unemployment rise has been driven by slow consumer spending, the market reversal, and failure on behalf of the Fed to increase money supply and cut rates – among others.

Household spending cuts slowed growth, and businesses that depended on sales began cutting back. Reduced tax revenues also led to budgetary pressures and service cuts in governments; job loss also had lasting economic repercussions, with dislocated workers suffering significant earnings losses that are more substantial than unemployment (Couch, Jolly & Placzek 2011). Its effects were especially devastating for mature family men with strong labor force attachments, good educational attainment and lengthy work histories who were left vulnerable by reduced revenues for governments as tax revenue revenues fell short (Couch, Jolly & Placzek 2011).

Job Dislocations

2024 saw an overall strengthening in the economy and it appeared unlikely that recession would take hold. The Federal Reserve appeared able to manage inflation without pushing it too far – mitigating hot inflationary spikes without inducing recession.

But displaced workers often experience long-term earnings losses. Marta Lachowska and Alexandre Mas’ research, using linked employee-employer data, revealed that displaced workers lost 30 percent of their pre-displacement earnings, even after finding new work.

Men, racial minorities and less educated individuals disproportionately bear the burden of these losses. Their victims tend to work in industries such as construction and manufacturing where cyclical industries such as mining tend to thrive – such as low wage jobs that pay less than previous jobs – making saving and spending difficult for these vulnerable groups.

Injuries

As businesses lose trust and begin to let employees go, people become hurt or sick, creating an endless cycle of job loss and consumer caution that affects both spending and economic growth.

Before recently, it appeared as though the economy had managed to sidestep a recession this year. Inflation seemed under control and rate hikes from the Federal Reserve seemed to help avoid hard landing scenarios for an uneven economy.

However, an unfavorable jobs report in early August reignited concerns of an imminent recession. Unemployment rates rose, sparking what economists refer to as “The Sahm Rule,” which suggests that recession could be imminent if jobless rates jump more materially within one year.

Loss of Savings

As the economy falters, many individuals put their spending plans on hold – leaving businesses with less customers and revenue.

As a result, businesses may need to reduce expenses by cutting employees. Consumer spending decline can then lead to higher unemployment rates as workers lose their jobs.

Past recession indicators included two consecutive quarters of negative GDP growth as a reliable signal that we were entering recession territory. Unfortunately, due to COVID-19 pandemic delays in household surveys tracking jobless numbers and jobless claims data collection; as a result many economists do not yet believe we are currently in recession but one should still remain alert – financial planning can help prepare oneself against possible economic downturn in 2024.