Economic Update Summer 2023
The U.S. is currently in late cycle characterized by higher interest rates, rising inventories, and slower economic growth. The odds of a recession have considerably fallen but remain elevated as the effects of aggressive monetary policy filter through the economy. Consumption, which is 65% of the U.S. economy is quite healthy. However, consumer credit is growing at its slowest pace since May 2020. Bank lending is shrinking. The ill effects of tighter financial conditions weigh on future economic growth. Despite coming in better than expected, the Conference Board's index of Leading Indicators has declined for fourteen straight months - at level that has been associated with recessions in the past. The ratio of Leading to Coincident indicators has rolled over and is at five-year lows. Historically, that is a trend that has also been associated with recessions.
Economic Update Spring 2023
The U.S. is currently in late cycle but a recession this year appears likely. Higher interest rates are weakening consumer demand, making it more expensive to live, and now contributing to bank failures. Household debt/service payments as a percentage of personal income is rising – Household operating cost rising! Chicago Fed National Financial conditions at tightest levels since May 2020. Credit spreads were widening early March over worries of more regional bank failures and have come off their highs. Wider credit spreads are an ominous sign of a recession on the horizon. The Fed’s aggressive tightening campaign is working. Liquidity that contributes to inflationary pressure is rapidly being drained from the U.S. economy. The supply of money is declining at the fastest pace since the Great Depression. Apparent end-of-cycle dynamics exhibiting themselves include slowing economic growth, rising inventories, declining profit margins, tightening credit conditions, contractionary monetary policy, rising unemployment claims, and inflation is moderating.
January 14, 2023
Economic Update Winter 2023
The U.S. economy remains in a late-cycle expansion phase with broad concerns of a recession. The Federal Reserve rate hikes have not had enough time to impact economic growth yet. Companies are laying off workers, however there are still plenty of jobs available. Unemployment is incrementally rising, and consumer spending for the moment is holding up. A significant rise in unemployment is the telltale indicator of every recession. The economy is far off from unemployment levels found in a recession. There is hope that any recession will be a mild and short-lived because unemployment may not reach a level normally associated with a recession.
Economic Update Fall 2022
The U.S. is in the late-cycle expansion phase with high recession risks. The economy is contracting. U.S. economic growth disappointed through the first half of the year, with the average of Q1/Q2 growth contracting by 1.1%. A tight labor market makes it difficult to make a recession call. The contraction has not been deep enough to cause unemployment to rise by a few percentage points. A significant rise in unemployment is the telltale indicator of every recession. There is hope that any recession will be a mild and short lived because unemployment may only rise from today’s extremely low rate of 3.5% to 4.5% rate and not reaching a 6% rate level characteristic of most recessions.
July 6, 2022
Economic Update Summer 2022
First-quarter growth declined at a 1.6% annualized rate, and an estimate from the Atlanta Fed, GDPNow tracker, project -1.9% GDP growth rate in the second quarter. Two consecutive quarters of negative real growth is a technical recession by one definition. According to the National Bureau of Economic Research (NBER), a recession refers to a significant decline in economic activity, lasting more than a few months, normally visible in real gross domestic product, real income, employment, industrial production, and wholesale-retail sales. The U.S. economy is not there yet but slipping that way.
April 12, 2022
Economy Spring 2022
The U.S economy remains in an expansion. Real gross domestic product (GDP) increased at an annual rate of 6.9% in the fourth quarter of 2021. The GDPNow model estimate for real GDP growth in the first quarter of 2022 is 1.1%. For the remaining quarters GDP is projected to grow on average 3%. Next year, TD Economics forecast U.S. economic growth of 2.2%.
The U.S. economy is going through a transition period this year. I am more in the stagflation camp over the next twelve months and not recession. Stagflation looks like 1.1% economic growth and y-o-y inflation of 8.5%! I see inflation peaking by the summer and dropping by year-end. It is difficult for U.S. economy to fall into recession given consumer strength and strong employment numbers.
Economic Update Winter 2022
US economy grew at 5.6% rate in fourth quarter 2021 and 5.8% for 2021! Supply chain constraints, labor shortages, and Omicron related slowdown effects have modestly slowed down the world’s largest and most resilient economy. Economic growth rate will remain higher than normal but has peaked as fiscal and monetary stimulus is waning this year. Overall, consumer demand, household wealth, low employment, easy credit conditions, provide a backdrop for sustained expansion in 2022. Recession risks are quite low.
US economic growth hit a soft patch in the third quarter due to supply chain constraints, labor shortages, and Delta Variance related slowdown effects. Growth rates will remain higher than normal but have peaked as fiscal and monetary stimulus is waning. Overall, pent-up consumer demand due to supply shortages, supportive fiscal and monetary policy, and favorable credit conditions provide a near-term backdrop for sustained cyclical improvement. There is no sight of a recession ahead.
Global and U.S. Economic Commentary
Global economic growth is accelerating and projected to reach 6.1%, and 7.2% in the United States in 2021. Recovery is being fueled by massive fiscal and monetary policy support. With the vaccination rollout gaining pace unleashing trillions of dollars in economic activity.