TLDR:
- The U.S. economy is showing signs of slowing down, with some experts predicting a recession
- BCA Research sees the economy on the cusp of a recession, contrary to market beliefs
- The unemployment rate increased to 4.3% in July, its highest since October 2021
- Fed funds futures market expects at least three rate cuts by the end of the year
- Some economists argue that rate cuts may not be sufficient to prevent a recession
The United States economy is showing signs of potential slowdown, with some experts predicting a recession in the near future.
Recent economic data and analysis from various sources have painted a complex picture of the current economic situation, leaving investors and policymakers uncertain about the path forward.
According to Garry Evans, chief strategist of global asset allocation at BCA Research, the economy is on the cusp of a recession.
This view contradicts the prevailing market belief, which has been more optimistic about economic prospects. Evans pointed to several indicators suggesting a slowdown, including what he described as a “deteriorating” U.S. labor market.
The U.S. Labor Department reported that the unemployment rate increased to 4.3% in July, reaching its highest level since October 2021.
This uptick in unemployment has raised concerns among some economists about the overall health of the job market. Additionally, a gauge for U.S. manufacturing activity fell to an eight-month low in July, further supporting the notion of economic deceleration.
The Federal Reserve’s interest rate decisions continue to be a focal point for economic discussions. The Fed funds futures market suggests that investors are expecting at least three rate cuts by the end of the year, according to the CME FedWatch Tool. However, Evans argues that these potential rate cuts may not be sufficient to prevent a recession.
“A few rate cuts are not going to prevent a recession,” Evans stated. He explained that the average recession lasts about 10 months, and it typically takes around a year before Federal Reserve rate cuts begin to boost the economy.
Julian Brigden, co-founder and president of Macro Intelligence 2 Partners, shares a similar view.
He argues that the Fed’s ability to cut rates without driving the economy into a recession is “statistically not very likely.” Brigden points out that in the last 12 tightening cycles, there have been 8 recessions.
Another concerning indicator comes from Steve Hanke, a professor at Johns Hopkins University. Hanke highlights the contraction in the money supply as a rare economic signal that has been seen only four times since 1913. In each of these instances, a recession or depression followed.
While the M2 money supply began expanding again in June of this year, Hanke notes that changes in the money supply take time to work their way through the economy, with a lag of one to two years.
Despite these warnings, w should note that the U.S. economy has remained robust even amid ongoing inflation and elevated interest rates. The economy is not officially in a recession, which is typically defined as two consecutive quarters of decline in a country’s real GDP.
Traders and economists are closely watching the annual economic policy symposium in Jackson Hole, where Federal Reserve Chair Jerome Powell is set to speak. His comments could offer greater clarity on the interest rate outlook and the Fed’s perspective on the current economic situation.
Consumer behavior is also being closely monitored. A survey conducted by Affirm reveals that about 3 out of 5 Americans think the country is already in a recession, highlighting the disconnect between public perception and official economic status.
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