- Morgan Stanley outlines two potential economic risks that could trigger a recession.
- Concerns revolve around increased layoffs and possible US tariffs.
- A significant rise in layoffs combined with new tariffs could lower GDP by up to 1.5%.
The US economy is currently growing, but Morgan Stanley warns of two risks that could lead to a recession: job cuts and rising tariffs. In a recent podcast, economist Seth Carpenter indicated that layoffs could increase as companies face hiring challenges following the pandemic, while enduring the impact of interest rates and possible tariff actions post-elections.
US job openings were around 8 million in August 2023, a decline of 34% since their peak in March 2022. Carpenter suggests that if the economy slows down, layoffs might increase, which could trigger a cycle of reduced spending and further economic deceleration.
Employers have announced plans to cut over 609,000 jobs this year, a slight increase from last year. Tariffs, especially following the potential policies of a new administration, could further destabilize the economy. Morgan Stanley projects that universal tariffs could inflate prices and cut GDP growth significantly.
Despite these risks, the broader outlook remains cautiously optimistic, with Wall Street showing confidence in avoiding a recession. Nevertheless, a 57% chance of an economic downturn exists within the next year, according to the New York Fed.
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