Many investors focus on past economic reports even though future trends matter most. Recent data has some people worried about a possible recession. The job market is slowing down and prices remain high, but unemployment is still low and the overall economy keeps growing. For long-term investors, these mixed signals mean it's important to stay balanced.
Economic data can be hard to understand. Instead of focusing on news headlines, it helps to look at the basics of the economy. The best place to start is with consumers since their spending makes up more than two-thirds of all economic activity. This spending directly affects company profits and the broader economy.
Jobs have been harder to find lately
To understand how consumers are doing, we need to look at jobs. The latest jobs report showed the job market is slowing more than expected. Only 22,000 jobs were added in August, which was much lower than the 75,000 economists predicted. The report also showed that June actually lost 13,000 jobs, the first decline since 2020.
These numbers are important, but economists don't just look at monthly job gains. They focus on trends and something called "labor market slack." This simply measures whether people looking for work can find it.
Fed Chair Jerome Powell recently said the job market is in "a curious kind of balance" because both the number of workers and jobs available have slowed.1 The unemployment rate is only 4.3%, which means most people who want to work can find jobs. There's still about one job opening for each unemployed person across the country. This suggests companies are still hiring, even if more slowly.
Consumer finances show mixed results
While the job market is cooling, consumer finances show what experts call a "two-speed economy." This means some people are doing well while others struggle, often based on their income and wealth levels. Total debt keeps rising across credit cards, car loans, and student loans. High household debt can be a problem if the economy gets worse.
One way to check if household finances are in trouble is to see if people are paying their bills on time. The chart shows that more people are late on credit card and car loan payments compared to two years ago. This is partly due to more borrowing and higher interest rates. Most of these late payments come from people with lower credit scores.
However, these late payment rates have stopped rising recently and remain much lower than before 2008. While total debt is high, the amount households pay on their debt each month has stayed flat. This suggests that while some families feel stretched, we haven't reached levels that typically lead to recessions.
Household wealth remains near record highs
It's easy to focus only on debt, but assets (what people own) matter just as much. U.S. household net worth (assets minus debts) remains near record levels at $169 trillion. This wealth has grown over the past 15 years due to steady economic growth, rising home prices, and strong stock market returns.
Again, this reflects the two-speed economy since the people borrowing more might not be the same ones benefiting from rising asset prices. Still, this "wealth effect" where rising asset values support spending can help stabilize the economy. This is one reason why many past concerns haven't led to a weaker economy.
This reminds us what builds wealth over time and why it's important to have a portfolio that matches your financial goals. During this period, investors worried about recessions many times. While markets can react to bad news in the short run, they often "climb the wall of worry" over the long run. For patient investors, focusing on long-term economic trends matters more than dwelling on past data.
The bottom line? While the job market has slowed, which makes Fed rate cuts more likely starting in September, it's just one part of the overall economic picture. When the outlook is uncertain, investors should focus on underlying economic trends to keep their portfolios balanced.
1. https://www.federalreserve.gov/newsevents/speech/powell20250822a.htm
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