Larry Summers warns of ‘disturbing’ economic signs
Former Treasury Secretary Lawrence Summers said worrying signs of a possible sharp drop in activity coupled with the strength of other indicators point to an uncertain economic outlook.
“We have an extremely elusive economy,” Summers said on Bloomberg Television’s “Wall Street Week” with David Westin. “People may be reading a little too much into the moment in terms of economic strength compared to how things could be very different in a quarter or two.”
Recent indicators have shown a strong start for the economy to 2023, with job growth, retail sales and service sector activity accelerating in January. The monthly pace of consumer price gains also accelerated last month.
Matching indicators “look very strong,” said Summers, a Harvard University professor and a paid contributor to Bloomberg Television. But “there are a variety of leading indicators that are more worrying,” he said. Among the signs of concern:
- Inventory levels “appear to be building up relative to sales.”
- Companies “report concerns about their order books.”
- The corporate sector seems to have a high number of employees relative to the “level of output” they produce.
- “Consumer savings are being used up, with a low savings rate.”
“There are things about looking a little bit down the road that essentially need to be concerned about the Wile E. Coyote moment,” Summers said, echoing his reference to the cartoon character falling off a cliff.
Federal Reserve policymakers must “remain agile and flexible” in the face of uncertainty, Summers said. The central bank should “resist the pressure to send strong signals about what it will do next,” he said.
The former chief financial officer also reiterated the lack of past examples where the US managed to avoid a recession when the unemployment rate fell below 4% and inflation rose above 4%.
“That’s a strong historical truth, and I think it’s relevant to our current situation,” Summers said.
The latest unemployment rate was 3.4%, while the CPI rose 6.4% yoy in January.
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