All articles tagged with #us recession
The US economy is on the brink of recession, with California and New York playing a crucial role in its future trajectory. Nearly one-third of states are in or at high risk of recession, while the overall economic growth remains fragile amid trade tensions, inflation, and a weakening labor market. The economic outlook hinges on these two large states, which could tip the national economy into a downturn or help it avoid one.
Mark Zandi, chief economist at Moody's Analytics, warns that the US economy is on the verge of a recession due to weakening consumer spending, rising inflation, and the impacts of tariffs and immigration policies, with rate cuts unlikely to prevent a downturn.
The 2024 World Economic Forum in Davos concluded with experts predicting no U.S. recession this year, minimal discussion on the Israel-Hamas conflict, and a positive outlook on AI's impact on the workforce. Chinese Premier Li Qiang revealed China's 5.2% GDP growth in 2023, signaling the country's economic challenges. The conference's popularity has strained Davos' infrastructure, with attendees noting increased traffic and satellite events overshadowing the main venue.
Strategists are giving cautious predictions for the macroeconomic outlook in 2024, highlighting market vulnerabilities and the possibility of a U.S. recession. The International Monetary Fund forecasts a slowdown in global GDP growth, with the U.S. expected to remain among the strongest developed market performers. However, Deutsche Bank warns of potential stress in the economy due to the lagged impact of interest rate hikes, citing signs of data softening and vulnerabilities in sectors such as regional banks, commercial real estate, and private markets. Goldman Sachs Asset Management notes the prospect of "higher for longer" interest rates and regional divergence in growth prospects and inflation patterns. JPMorgan Asset Management strategists also express caution, stating that the risk of a U.S. recession has been delayed rather than diminished as higher rates impact the economy.
Despite a summer of low inflation, strong job numbers, and consumer spending, there are several factors that suggest a US recession may be imminent. These include the potential impact of a major auto strike, the resumption of student loan repayments, a possible government shutdown, rising oil prices, and a credit squeeze. Additionally, the Federal Reserve's interest rate hikes are expected to have a delayed impact on the economy, potentially leading to a downturn. While some argue for a soft landing, historical data and the unpredictability of recessions suggest that the consensus may be too complacent.
Goldman Sachs has revised its forecast for the likelihood of a US recession in the next 12 months, lowering it from 20% to 15%. The decision was based on positive inflation and labor market data, with expectations of continued solid job growth and rising real wages. The investment bank also believes that the drag from monetary policy tightening will diminish and eventually vanish by early 2024. Goldman Sachs expects the Federal Reserve to keep interest rates unchanged in its upcoming policy meeting, with a gradual reduction of 25 basis points per quarter starting in the second quarter of 2024.
Economist David Rosenberg predicts that the US economy is heading towards a recession within the next six months, citing the impact of the Federal Reserve's aggressive interest rate hikes. He highlights the historical correlation between rate hikes and recessions, and warns of a significant erosion in credit quality, particularly in credit card debt. Rosenberg also expresses concerns about China's economic slowdown and its potential to export deflation. Despite fiscal stimulus measures, he remains steadfast in his recession prediction, urging patience from those who doubt his forecast.
Gold's appeal to investors has diminished due to the improving economic outlook in the United States, but weakness in U.S. consumers could still lead to a recession and boost the precious metal, according to Heraeus. The analysts believe that the Federal Reserve is likely to maintain a 'higher for longer' policy on interest rates, which has strengthened the dollar and caused the gold price to slip. However, if consumers falter and a recession occurs, the gold price could rebound. Meanwhile, silver is expected to benefit from Chinese stimulus measures aimed at bolstering the economy, as expectations of further stimulus support industrial metals prices.
Jeremy Grantham, co-founder of GMO, warns that a US recession is still on the way and expresses little confidence in the Federal Reserve's ability to steer the economy towards a soft landing. Grantham believes that higher interest rates will cause pain in financial markets and that the central bank's track record in predicting recessions is "almost guaranteed to be wrong." He predicts that the repercussions of higher rates will lead to a stock market decline and a recession that could last into 2024. Grantham also suggests that reaching the Federal Reserve's goal of 2% inflation may be difficult, as he expects a period of moderately higher inflation and interest rates.
Goldman Sachs has lowered the probability of a U.S. recession in the next 12 months from 25% to 20% due to positive economic data. The investment bank's chief economist cited resilient economic activity, strong consumer sentiment, and falling unemployment levels as reasons for optimism. While the bank expects some deceleration in subsequent quarters, they believe the U.S. economy will continue to grow, albeit at a below-trend pace. Goldman still anticipates a 25 basis point interest rate hike from the Federal Reserve, but it could mark the end of the current cycle.
Treasury investors are betting on the US falling into a recession, as the yield curve inverts and economic indicators weaken. This has led to increased demand for safe-haven assets such as US Treasuries. However, some analysts believe that the market may be overreacting and that there are still opportunities for growth.
The yield curve in the US has inverted by one percentage point, the most since March, after Federal Reserve Chair Jerome Powell signaled policymakers may keep pushing interest rates higher. The two-10 segment of the yield curve has inverted before each of the past five US recessions. The inversion of the two-10 spread had widened to 111 basis points on March 8, the most since the 1980s, before narrowing later that month as the collapse of several US regional lenders fueled concern a potential banking crisis would convince the Fed to start cutting rates.
Deutsche Bank's chief economist, David Folkerts-Landau, warns that the US is headed for a hard landing and a recession due to the Federal Reserve's rapid sequence of interest rate hikes. Folkerts-Landau's team predicts that the Fed will create a further drop in inflation, leading to a recession that will prompt them to cut rates by March 2024. The Deutsche Bank analysts suggest that AI could be the one source of growth for the US in otherwise stagnant economic conditions. Legendary investor Stanley Druckenmiller believes that AI could continue to outperform the rest of the stock market if the companies involved can show signs of sustained growth in a recessionary environment.
Economist Steve Blitz warns that a U.S. recession may be imminent as banks slow lending and corporate profits weaken. The Treasury's plan to issue T-bills to replenish its coffers could divert even more money away from markets and the economy. Signs of slowing corporate earnings growth could push the economy over the edge, leading to more layoffs and a slowdown in wage growth. Blitz also cites a drop in railcar loadings of lumber and metal products as a sign that a recent uptick in the manufacturing economy is already fading. Even if the U.S. manages to delay a recession, the Federal Reserve and markets could face other problems, like a resurgence of inflation.
Despite concerns about a potential US recession, Wall Street saw a surge in stocks following a strong jobs report and a debt ceiling deal. The positive economic news has eased fears of a downturn and boosted investor confidence.