Gary Shilling warns of the possibility of a recession for the U.S. economy.

Gary Shilling, a financial analyst, warns that while the U.S. economy has managed to avoid a recession, there is still a possibility of a more severe economic slowdown.

According to Shilling, U.S. small businesses are often indicative of recessions, along with other factors such as the yield curve and leading indicators.

Small businesses are highly sensitive to economic conditions due to their limited capitalization, and as a result, they are cutting back on employment and other areas. On the other hand, the labor market is a crucial factor that has helped the U.S. avoid a recession, as there has been more strength in employment than expected given the state of the business.

In the midst of the labor shortage, companies vied for employees.

The reluctance of companies to lay off staff after investing time and energy in hiring new employees has contributed to a stronger labor market than anticipated, according to Shilling.

"According to Shilling, the labor market has not experienced the usual level of weakness that would have caused a recession in 2023. However, this does not mean that a recession will not occur, but rather that it has been delayed."

Shilling is closely monitoring indications of a sluggish labor market. He pointed to several preliminary signs of weakness, including wage gains, quits, and service inflation. "Service inflation is the real challenge for the Fed," he said. "Wages in the service sector are rising at an alarming rate, with gains of 5% or 6% per year. This is far beyond the Fed's target of 2% inflation."

The Fed has signaled that it intends to reduce interest rates by at least three percent in 2024.

"According to Shilling, the Fed is considering reducing interest rates, but they want to ensure that inflation is completely eliminated before doing so. Shilling believes that the Fed is not in a rush to make this decision because there is no clear evidence that the economy is deteriorating. As long as employment remains strong, the Fed has no reason to act quickly."

The video above discusses the potential future of the U.S. economy, including key indicators, artificial intelligence, globalization, and the upcoming presidential election.