Summers sees signs of a sharp drop in economic activity

The former secretary of Treasure Lawrence Summers He said worrying signs of a possible sharp decline in activity, combined with strength in other indicators, point to uncertain economic prospects.

“We have an extremely difficult economy to interpret,” noted Summers on the show Wall Street Weekfrom Bloomberg Television with David Westin. “People may be reading the moment a little too much in terms of economic strength, relative to how things could look very different in a quarter or two.”

The latest indicators have shown a good start for the economy in 2023, with job growth, retail sales and service sector activity accelerating in January. The monthly pace of consumer price increases also accelerated last month.

Matching Indicators “they seem very solid”said Summers, a professor at Harvard University and a paid contributor to Bloomberg Television. But “there are a number of leading indicators that are more worrisome,” warned. Among the signs of concern:

• inventories “They seem to be increasing relative to sales.”
• companies are “reporting concern about their order books.”
• The business sector seems to have a high number of employees in relation to “the level of production they are generating”.
• “Consumer savings are drying up, with a low savings rate.”

“There are things when you look a little bit into the future that have to be substantially troubling about the Wile E. Coyote kind of moment,” Summers said, reiterating his reference to the cartoon character who falls off a cliff.

The Federal Reserve’s monetary policy makers will have to “stay agile and flexible” given the uncertainty, Summers said. The central bank should “resist pressure to give strong signals about what you are going to do next”said.

The former Treasury chief also reiterated the lack of past examples where the US managed to avoid a recession when the unemployment rate fell below 4% and inflation exceeded 4%.

“That’s a powerful historical truth and I think it’s relevant to our current situation.” Summers said.

The latest reading for the unemployment rate was 3.4%, while the consumer price index rose 6.4% in January on a year-over-year basis.