Too hot, too cold or just right?

By Joe Higgins, Quest 4 Quality

  • The August employment report showed that our economy added 187,000 jobs.
  • The unemployment rate rose from 3.5% to 3.8% as more people returned to the labor market.
  • Consumer savings, the result of stimulus programs, have nearly dried up, spelling unwelcome news for the economy.

In the story of “Goldilocks and the Three Bears,” the young protagonist didn’t want the porridge that was too cold or too hot. She wanted the one that was just right.

Economists use the term Goldilocks economy to describe an ideal economy in America. It would occur in this scenario: inflation at 2%, unemployment below 4%, consumer spending near 2.5% and GDP above 3%. From the Federal Reserve’s point of view, it would be an economy where demand isn’t outpacing supply and everyone who wants a job has one. 

Theoretically, supply and demand in an ideal economy reach equilibrium, or a balance where supply and demand are equal. This does not often happen; for example, a shortage of washers will cause prices to rise and an oversupply of washers will cause prices to contract. We were all witnesses to this in 2021 and 2023. 

Supply and demand for workers in America are getting close to equilibrium. Last week’s August jobs report showed our economy added 187,000 new paying positions, beating consensus and pushing the unemployment rate up to 3.8%. After hoovering all year near 3.5%, enough workers came back into the economy to raise the rate. As a result, the Fed may be ready to pause interest rate hikes as the economy finally feels like it’s cooling off. 

After talking to BrandSource members over the past three years about labor shortages, last month’s report should make you all feel better as quit rates are down, employees are looking for stability and a surge of workers came into the labor force in August. The surprising news was the amended job numbers for May and June, which were revised down by 110,000, suggesting that our summer growth was not nearly as strong as first predicted. 

Consumer Savings

One of my biggest concerns as we move into fall is the rapid depletion of consumer savings. During the pandemic, the government passed three stimulus programs in 2020 and 2021 to maintain economic stability. The total cost of these programs was nearly $8 trillion, which resulted in the consumer savings rate rising to 35% — up from the country’s average pre-pandemic savings rate of 7.5%.

Americans had excess savings of $2.3 trillion, allowing them to go on an historic spending spree over the past three years. Today, after spending down their savings by nearly $2.1 trillion, only $200 billion is left in their accounts. My best estimate is that if consumer spending continues at its current robust pace, we will be out of money by year’s end. This is a massive problem as this stimulus money brought much prosperity to our dealers over the last few years and could signal a recession in 2024. 

The good news is that the economy has created roughly over 13 million jobs over the past three years, with historic wage gains of over 4%. So, while savings helped prop up the economy during the shutdowns in 2020, the millions of new higher-income workers who are spending heavily are keeping things going in 2023. Whether they continue to do so will play out between now and New Year’s Day. 

The Bottom Line

The downward revision of 110,000 jobs in June and July shows that hiring slowed over the summer. This is precisely what the Fed has been trying to achieve with 18 months of rate hikes. It raises the possibility that Chairman Jerome Powell’s grand plan to reduce inflation without causing a recession could in fact be a reality. Powell has been calling this a “soft landing.” 

You would expect layoffs to rise in this environment, but that has not happened. Due to the severe shortage of workers, companies have generally held on to staffers, which has kept the unemployment rate around 3.5% for the past year.

So, I see two competing narratives: First, every recession over the past 70 years has started with a swift rise in unemployment as companies shed workers. With unemployment at 3.8% today, it is improbable that we would fall into recession between now and 2024. 

Second, the government’s massive stimulus programs made cash-rich and housebound consumers eager to spend on home improvements. This money is now behind us, and we must rely on a normal labor market. This could swing the economy towards a 2024 recession, as there will be no more stimulus money and consumer spending will slow down. 

Stay tuned as every new report reveals our future as we strive to create a Goldilocks economy.

 Joe Higgins is a 46-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at

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