Is the US Economy Facing Stagflation?

The term stagflation conjures up images of the 1970s, long lines at gas stations, and price controls. For most Americans, their only knowledge of stagflation is from history books. And even many older Americans who live through the 1970s would be hard pressed to remember the strategies that got them through that decade.

Fast forward 50 years and the United States is once again on the verge of entering into stagflation. The combination of high inflation and economic stagnation is once again rearing its head and leading to fears that this decade could end up being a repeat of the 1970s.

For the hundreds of millions of Americans who haven’t experienced stagflation before, this could be a real wake-up call. And those who don’t prepare themselves against stagflation could end up suffering greatly.

Economic Growth Slowing

All around us are signs that the US economy is slowing significantly. Right now the banking crisis is taking front and center, but it isn’t just banking that is facing difficulties. Manufacturing, services, and technology companies are also paring back operations, trying to operate as lean as possible to try to weather a troubled economy.

What really is starting to worry markets, however, is the fact that inflation remains high while the economy is starting to stagnate. The latest GDP numbers indicate that the economy is only growing at a 1.1% annualized rate, versus the 1.9% that had been expected.

That big of a miss means that economic growth is likely falling faster than most analysts have predicted. And if economic growth is falling that fast, then recession could be coming quicker than most people expect.

Adding to the impact of a slowing economy is inflation that is still high and potentially climbing. While headline CPI figures dropped to 5%, the Fed’s preferred inflation measure, personal consumption expenditures (PCE) rose from 4.2%, higher than the 3.7% expected.

Once again that’s a big miss, and once again it means that analysts are really unable to assess just how weak the US economy is right now. And once again, it doesn’t bode well for the future that inflation is increasing and growth is decreasing, as that is a classic indicator of stagflation.

Other Factors Indicating Stagflation

Part of the reason for the decline in economic growth is a slowdown in manufacturing activity. Factory orders only grew 0.9% month to month, versus the 1.3% expected, demonstrating yet another big miss on the part of analysts. Perhaps more ominously, orders for core factory goods (excluding transportation equipment) posted a second consecutive month on month decrease, and thus the first year on year decrease since 2020.

The reason the core data is so important is because it excludes high value items like airplanes that can skew data since they are often purchased in large quantities and relatively infrequently. Excluding them gives a better sense of how the actual market for durable goods is, and right now it’s not looking too hot.

The labor market isn’t looking too great either, as job openings fell once again along with the number of quits. That indicates that employers aren’t hiring as much as they used to, and that workers aren’t searching for greener pastures like they used to since they aren’t guaranteed to find another job in a contracting economy.

One of the problems with the job openings numbers from the JOLTS survey, however, is that the Bureau of Labor Statistics (BLS) only has a 31% response rate to its surveys right now, down from 69% at the beginning of 2013 and 48% at the beginning of 2021. In other words, most of those job openings are just estimated data extrapolated by statisticians, as the government can’t get all the data it used to get, which means that the actual jobs data could be far worse than we realize.

While none of these numbers are horrible yet, they could only be the harbinger of things to come. Remember that the first slowdowns before the 2008 financial crisis started occurring in 2006 and 2007 as the overheated housing market began to cool. We were told that everything would blow over, but obviously it didn’t.

Now that we know that manufacturing activity and economic growth are slowing, that inflation could be increasing, and that the job market could be tightening, we’re able to judge the future a little better. But without any indications that there is improvement in the future, it’s hard to be optimistic about the state of the economy for the rest of the year.

Are There Any Bright Spots?

For those looking for some positive news, there are a few, particularly if you’re looking to protect your financial assets against the possibility of a coming recession. For one thing, stock markets still haven’t reacted too strongly to any of the negative news.

Yes, markets are still down compared to where they started last year, but they’re up mildly this year. Stock markets often are lagging indicators, and only start to fall once recession is almost underway. That was the case in 2007, as markets peaked in October 2007 while the recession officially began in December.

The fact that stock markets haven’t cratered so far this year means that investors still have time to make plans to protect themselves against the likelihood of recession. One way many people are doing that is by buying gold.

Recently gold has been trading at over $2,000 an ounce, and it just hit a new all-time high price in overnight trading, hitting nearly $2,100 an ounce. With gold having a reputation for performing well when the economy isn’t, it’s not hard to believe that the gold price could really take off once a recession hits.

While supplies of physical gold coins and bars remain tight due to incredibly high demand from retail investors and consumers, it isn’t impossible to find gold. And if you’re looking to add gold to your portfolio as a safe haven asset or hedge against inflation and recession, now is the time to do it.

Goldco has helped thousands of customers benefit from owning gold, and has made billions of dollars in precious metals placements. We work with mints around the world to bring you authentic gold and silver products to meet your needs, whether you’re looking to protect retirement savings with a gold IRA or just looking to buy gold and silver coins for a rainy day.

If you’re looking for a way to protect yourself against stagflation, maybe it’s time to consider precious metals. Call Goldco today to learn more about how gold and silver can help safeguard your savings against stagflation.