The previously strong US economy is also facing a recession, an investment bank warns. Robert Alexander/Getty
According to the investment bank Raymond James, the previously strong US economy will also fall into recession in the next nine months.
Rising credit costs, increasingly critical consumers and strikes would significantly slow down the economy, writes its investment boss in a note.
Here are three warning signs Raymond James is watching ahead of the potential recession.
The US economy has so far stood like a rock in the raging global economy. Neither the global tensions, the sluggish global economy nor the extreme interest rate increases could have any effect on the world‘s largest economy. But many economists warn that the USA will not be spared from a downturn. “Don’t let resilient consumers fool you, a recession will hit the US economy within the next nine months,” writes Larry Adam, head of investment at investment bank Raymond James, in an analysis.
Wall Street’s forecasts for a long-awaited recession would ever further into the futureabove. Above all, consumer spending supports the economy. But a number of risk factors suggest to Larry Adam that the US economy cannot avoid a recession within the next year.
Three warning signs of a recession in the USA
These are the three main warning signs he observes.
1. Growing headwinds for consumers
From increased borrowing costs to the resumption of student loan payments, there are headwinds for everyday consumers. The tailwind that has driven consumption since the end of the corona pandemic is coming to an end. The excess savings have almost been used up.
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“Certainly consumers have jobs and income right now, but their ability to continue to consume without worry is coming to an end,” Adam said.
He pointed to Bank of America CEO Brian Moynihan’s assessment that consumer spending is now back to pre-pandemic levels in a low-inflation, low-growth economy.
Finally they pointed growing credit card debt and increasing arrears indicates that more and more Americans are defaulting on their debts.
“While we don’t expect consumption to crash, we can expect a moderation in spending,” Adam said.
2. High borrowing costs
High borrowing costs on cars, homes and credit card debt pose a threat to economic growth, especially if they last longer than expected.
The ongoing crisis in the housing market suggests that residential real estate activity will remain “frozen,” according to Adam. The trust of the house builder fell to its lowest level since January. They responded by taking advantage of adjustable-rate mortgages, which now account for nearly 10 percent of new home loans.
The higher interest rates also have a negative impact on companies’ investment plans.
“A compilation of regional Federal Reserve surveys of capital spending show that companies’ investment plans for the next six months have fallen to the second lowest level since the COVID era,” Adam said.
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3. Macro risks are increasing
The risks to the economy and the stock market are increasing, and quickly. Increased gas prices, war in the Middle East and deteriorating consumer sentiment are just some of the risks.
The Conference Board’s expectations index fell to its lowest level in four months, “a level that historically indicates a recession within the next year,” Adam said. The index measures consumers’ attitudes toward the short-term outlook for the economy and the labor market.
All of these risks are likely to ultimately impact consumer spending at a time when an important holiday season is approaching.
“If you add the possible disruptions caused by the ongoing strikes in the automotive industry and a possible temporary lockdown by the federal government Added to this in mid-November, growth could be significantly weaker in the coming months,” says Adam.
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