What the heck is happening with the economy?

There were fresh readings post Memorial Day on jobs, housing prices, manufacturing, construction, and consumer confidence. The signals were as confusing as a Christopher Nolan movie, with some pointing to a resilient economy and others revealing strain under the weight of higher interest rates.

On balance, business conditions seem healthy enough to avoid a painful recession. If the US economy were a zeppelin, I’d say it had a slow leak. It’s losing altitude, but the landing doesn’t necessarily have to be hard and costly.


Here’s why.

Three years after the pandemic hit, daily life is more or less back to normal for many Americans. (Two big exceptions, of course, are the rise of remote and hybrid work and inflation.)

Despite high prices, we’re going to bars, eating out, and traveling by planes, trains, and automobiles. We’re spending more on services — everything from haircuts to cruises to medical care — and less on goods that we stocked up on when we were homebound — like Peloton bikes and furniture.

Growth overall has slowed since last year as the Federal Reserve’s inflation-fighting rate hikes weigh on credit-sensitive sectors such as housing, manufacturing, and banking. But consumer spending, which powers about two-thirds of the economy, and business investment is still robust enough that many companies are hiring to keep up.

Exhibit A: Employers added 339,000 jobs last month, the Labor Department said on Friday. That was far more than forecasters expected, and the most since January.

Sectors leading the job gains included professional and business services, government (mostly in state and local education), health care, and leisure and hospitality.


Employment in the construction industry reached a record high, the jobs report showed. Separately, construction spending rose 1.2 percent in April, the third consecutive month-over-month increase, the Commerce Department said last week. The growth is surprising because the sector is sensitive to rising interest rates.

There were a few signs that the job market is gradually cooling off. The jobless rate rose to 3.7 percent from 3.4 percent in April, the Labor Department said. Wage growth slowed and hours worked dipped.

Unemployment is still quite low by historical standards, and the Fed faces a tough decision when it meets later this month to decide its next move on interest rates.

Unemployment is still quite low by historical standards, and the Fed faces a tough decision when it meets later this month to decide its next move on interest rates. Andrew Harrer/Bloomberg

To be sure, central bank policy makers will consider indicators beyond employment to determine whether they should tighten credit yet again or hold off to see if inflation continues to moderate.

On the downside, manufacturing has contracted for seven straight months, the Institute for Supply Management said on Friday. Consumer confidence in May fell and is well below the post-pandemic peak reached in June 2021, the latest Conference Board survey showed last week.

And the all-important housing market, well, it has taken the brunt of the Fed’s rate hikes.

Sales have dwindled due to high mortgage rates. The dearth of homes on the market has kept prices from falling, except in formerly super-heated Western states including Utah, Nevada, California, and Washington, though price growth has slowed pretty much everywhere.


Nationally, house prices rose 4.3 percent in the first three months of 2023 compared with the same period a year earlier, the Federal Housing Finance Agency reported last week. It was the smallest such increase since 2014.

In Massachusetts, the FHFA index rose 3.9 percent, and the gain in the Boston metro area was just 0.4 percent.

Also released last week was the latest edition of the Fed’s Beige Book, which is issued eight times a year and paints a picture of business conditions based on reports from directors of the 12 regional Fed banks and interviews with business people, economists, market experts, and other sources.

For me, the comments reported by the Boston Fed, whose territory covers most of New England, captured our particular moment — one where we move slowly toward economic inertia.

“Business activity in the First District was about flat on balance,” the report said, which has basically been the theme of its dispatches all year.

The few bright spots highlighted by the Boston Fed included a seasonable uptick for restaurants, a modest increase in retail sales, and some easing of pricing pressures.

There were plenty of yellow flags. Employment dropped slightly “amid broad declines in labor demand.” And conditions in the commercial real estate sector deteriorated, especially for office landlords, who are struggling as remote work starts to feel more permanent.

While this had primarily affected downtown areas, the suburban office market is now starting to feel the squeeze, the Boston Fed said.


“The outlook,” the Boston Fed concluded, was “cautiously optimistic.”

As our airship of an economy returns to earth, there is reason to be cautiously optimistic. While many forecasters see a mild recession later this year, they don’t expect it to be a Hindenburg disaster.

Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.