Title: US Employment and Consumption Data Boost Confidence, Reducing Recession Probability
Subtitle: Experts and Investment Banks Shift Outlook, Optimism Grows
Date: Sunday, July 23, 2023
By Clara Zepeda, La Jornada
Despite initial predictions of an impending recession, the United States has managed to stave off an economic downturn due to the resilience shown by its main trading partner, Mexico, and ongoing economic activity. As the cloud of uncertainty begins to lift, recent data on US employment and consumption has prompted Goldman Sachs to reduce the probability of a recession from 35 percent to 20 percent.
Initially, economists had been predicting a recession in the US within the next 12 months. However, the continuous growth in jobs and job vacancies within the country has offered evidence to the contrary. Ramsé Gutiérrez, investment co-director of Franklin Templeton Mexico, points out that after more than 300 days of recession concerns, an increasing number of experts in the US now agree that the country will likely avoid an economic recession, with expectations limited to only one more interest rate hike.
The prevailing sentiment has shifted from widespread worry about an impending recession to a belief that it may not materialize at all. Industry specialists now express the view that even with multiple interest rate hikes, a struggling consumer, and tighter credit conditions, the US economy can successfully navigate these challenges. Wealth builders SNX explains that recent expert opinions suggest that despite the current inverted interest rate yield curve – a historical predictor of recessions – the US economy is exhibiting strong growth momentum at the start of the third quarter, offsetting the negative impact of reduced bank lending.
Goldman Sachs, in particular, has made an optimistic move by reducing their recession probability to 20 percent. They believe that the storm clouds gathering over the nation’s economy are gradually dissipating. The bank also notes positive signs in the manufacturing sector, which has been in contraction for several months but is now showing signs of bottoming out. Additionally, home sales, once in freefall, are experiencing a gradual decline, offering a glimmer of hope for the housing market.
Fueling this upbeat sentiment is a robust rebound in domestic demand, which posted an annualized increase of 2.6 percent in the second quarter. Citi’s Economic Surprise Index, comparing actual readings with expectations, is currently at its highest level since mid-March 2021. While investors still anticipate the Federal Reserve (Fed) to raise benchmark interest rates in its upcoming meeting, Citi suggests this could be the final hike for 2023.
Bank of America’s July survey of global fund managers reveals a noticeable shift in expectations regarding an economic downturn. Though 48 percent of respondents still anticipate a global recession by the end of Q1 2024, the percentage of those not expecting a recession has risen to 19 percent, marking a 5 percentage point increase since June. Furthermore, the number of professionals who foresee a soft landing for the economy has climbed to 68 percent, compared to only 21 percent who predict a hard landing.
Overall, the combination of positive employment and consumption data, along with growing confidence in various sectors, has significantly reduced the probability of an imminent recession in the United States. While challenges persist, the US economy appears to be on a hopeful trajectory towards continued growth and stability.