Balance Sheets
Consumers’ balance sheets are in much better shape than they were prior to the last economic contraction. Household debt as a share of disposable income stood at 105 percent in the fourth quarter, well below the 133 percent reached in the final three months of 2007.
Businesses seem more vulnerable. Corporate profits plunged 11.5 percent in the fourth quarter from the year-ago period, the biggest drop since a 31 percent collapse at the end of 2008 during the height of the financial crisis, according to data compiled by the Commerce Department.
History shows that when earnings decline, the economy often follows into a recession as profit-starved companies cut back on hiring and investment.
"More and more employers are struggling with profits," Levanon said. "That is resulting in some belt tightening."
While he doesn’t see that pushing the U.S. into a recession, Levanon expects monthly payroll growth to slow to 150,000 to 180,000 over the balance of this year, compared to an average of 229,000 in 2015.
Though much of the weakness in earnings has been concentrated in the energy industry, companies in general have been struggling with rising labor costs as the tightening jobs market puts upward pressure on wages and worker productivity has lagged.
Peter Hooper, chief economist for Deutsche Bank Securities in New York, sees that leading to a possible recession a couple of years out as companies raise prices, inflation starts to accelerate and Fed policy makers have to jack up interest rates more aggressively in response.
"The slower they go in the near-term, the bigger the risk down the road," he said of the Fed. "Looking out over the next four years, the chances of a two-quarter contraction are probably above 50 percent."