AILSA CHANG, HOST:
Is the U.S. headed for a recession? Well, it depends on whom you ask. Recession fears triggered a big selloff on Wall Street yesterday. The stock market suffered its biggest loss all year. But today, we saw relatively quiet trading. The Dow Jones Industrial Average rose modestly as investors tried to decipher some of the mixed signals we've been getting about what direction the economy is headed.
NPR's Scott Horsley joins me now with more clues about that.
SCOTT HORSLEY, BYLINE: Hi, Alisa.
CHANG: So let's talk about some of these mixed signals. I want to start with retail sales. Spending doesn't seem to be slowing down. In fact, it's picking up. What does that tell us?
HORSLEY: Yeah, retail sales in July jumped even more than forecasters were expecting, and that was the fifth consecutive monthly gain. Alisa, that's important because consumer spending accounts for more than two-thirds of overall economic activity in the country. And economist Jack Kleinhenz of the National Retail Federation says after a soft patch early in the year, it looks like consumers are really opening their pocketbooks and spending freely.
JACK KLEINHENZ: Consumers are alive and well. Job growth is good. We're seeing wage increases. The savings rate is up. Confidence continues to stay at a fairly elevated level. This is a good place to be.
HORSLEY: So if you started out the day worried about yesterday's stock market swoon, consumer spending was one place you could look for some reassurance.
CHANG: OK, that's mildly comforting, but we were just saying that there were mixed signals today. So where are some of the more ominous signs that we're seeing from the economy?
HORSLEY: Factories. We've got a report on industrial production today, and once again, it's pointing in the wrong direction. Manufacturing output declined last month, and it's declined in five of the last seven months. Senior economist Ted Quinlan (ph) of Wells Fargo Securities says the factory slowdown is all about the trade war.
TIM QUINLAN: The trade war does two things that are not good for the manufacturing sector. One is it disrupts supply chains and increases costs. The other reason that the trade war is bad for the manufacturing sector is it's had a chilling effect on global growth. U.S. manufacturers who export things to other places are feeling some trade winds as well.
HORSLEY: Now manufacturing is not what it once was. It's dwarfed by the much larger services side of the economy. But we've also seen some indications that the slowdown is spreading beyond factories to the broader economy. Business investment has slowed down, and economic growth has definitely down-shifted. The question is, does it actually shift into reverse?
CHANG: Well, meanwhile, President Trump has been talking up the economy. And today, he criticized reporters for emphasizing all the negative economic news. What did he have to say today?
HORSLEY: Yeah, the president tweeted this afternoon that the news media is doing everything it can to, in his words, crash the economy. He says news outlets are trying to talk down his reelection chances. But Trump insists the economy is way too strong to be frightened into a recession, and there are some serious economists who are also voicing confidence about the strength of the economy ten years into this long economic expansion. One of those is Janet Yellen, the former Federal Reserve chair. She was asked about the economic climate on Fox Business.
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UNIDENTIFIED INTERVIEWER: Are we going into a recession?
JANET YELLEN: I think the answer is most likely no. I think that the U.S. economy has enough strength to avoid that.
HORSLEY: Yellen discounted the warning sign we got in the bond market yesterday when the yield or payoff on long-term government debt briefly dipped below the yield on short-term debt. Historically that has been a harbinger of recession, but Yellen and some other economists say they think it's different this time around.
That said, Yellen acknowledges the odds of a recession have gone up, and she says that makes her a little bit uncomfortable. One thing to watch for is whether the swoon in the stock market yesterday makes ordinary Americans uncomfortable to the point where they stop spending.
HORSLEY: We saw that earlier this year. And if it happens, that could knock out one of the pillars that's been propping up the economy.
CHANG: All right, that's NPR's Scott Horsley.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.