The S&P 500 should fall a lot further to price in a US recession, if history is any guide. The US benchmark has slid 32 percent on average from a peak to a trough during the past eight recessions going back to 1969, based on a Bloomberg study.

Following the robust job numbers, which included a 5.2% 12-month gain for average hourly earnings, traders accelerated their bets on a more aggressive Fed. As of Friday afternoon, markets were assigning about a 69% chance of the central bank enacting its third straight 0.75 percentage point interest rate hike when it meets again in September, according to CME Group data.

So while President Joe Biden celebrated the big jobs number on Friday, a much more unpleasant data point could be on the way next week. The consumer price index, the most widely followed inflation measure, comes out Wednesday, and it’s expected to show continued upward pressure even with a sharp drop in gasoline prices in July.

At first look, American companies seem to be doing just fine in the face of high inflation and rising interest rates. But look underneath the surface, and there are potential warning signs about the economy – and it’s got the country’s top executives feeling a little bit nervous.

So far, 453 of the top 500 companies comprising the S&P 500 have reported earnings and about 75% did better over the April to June quarter than Wall Street expected, according to S&P Dow Jones Indices.

Look at the real estate and construction industry – they are certainly having difficulties. After two years of rising prices and high demand, they’re now weathering a significant cooling in the market. Construction spending has decreased. A well-known mortgage monitoring services has reported a “record-setting slowdown” in home price growth. Large firms in the industry like Redfin and Compass have already announced layoffs. More are likely to come.

Small manufacturers are also facing headwinds, as are financial services and tech firms. Wall Street firms and banks have reported shrinking earnings, laying the groundwork for upcoming layoffs. Firms in the tech industry, facing constrained capital, have already laid off tens of thousands of workers. The services industry has slowed.

Index of industrial production: Industrial production was positive in the first few months of 2022 and has flattened out more recently, showing a slight decline in June.

All in all, it does not look like we are seeing the “broad-based weakness” that we would normally associate with a recession. However, US growth is slowing as the Fed signals an assertive tightening of monetary policy and financial conditions tighten. In its latest update, the IMF slashed its US growth forecast to 2.3% this year, a drastic 1.4 percentage points lower than the April forecast, with growth projected at just 1% for next year.

The Biden administration has pushed back on the idea that the country is in a recession, arguing that — though the rapid growth seen last year may be cooling — the economy is not experiencing the widespread job losses and spending reduction that typically signify a sharp downturn. “That doesn’t sound like a recession to me,” President Biden said in an address late last month. Many economists agree with the White House’s view. They make the case that the situation is far too complicated — with varying metrics providing starkly different views of the health of the economy — for a measure as simple as the two-quarter rule to apply.

Many conservatives, on the other hand, have accused the Biden administration of trying to redefine away from that commonly-accepted meaning because acknowledging the economic reality would be a major political setback. They argue that, whatever vocabulary the White House chooses to use, Americans won’t be convinced because they’re living through tough economic times every day. 

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