Wall Street Journal (05/27/15) Greg Ip
The economy is relatively weak, despite high stock prices and strong hiring. The U.S. is dealing with cyclical and structural headwinds that could result in more poor quarterly performance and recessions. Some observers are wondering if the economy currently is in recession or headed that way. As unemployment approaches 5%, a level usually associated with full employment, the gains associated with using up idle capacity and labor are fading.
That said, business cycles typically end because of an economic shock such as higher oil prices or a financial crisis that curbs demand. Few signs of recession currently exist. Inflation is too low, oil prices are low, and there is adequate spare labor when involuntary part-time workers are included. Most critically, the unemployment rate continues to fall, which historically has correlated with an expanding economy. Still, the correlation isn’t absolute. As the population ages, the labor force may contract, so a loss of output that results in fewer jobs is less likely to translate into a higher unemployment rate.