Jul
After an impressive surge through 2023, the US economy is now transitioning to a more subdued pace. Companies are hiring fewer employees, consumer spending is tapering off, and the housing market remains largely stagnant due to the highest interest rates in decades. Manufacturing is struggling, with exceptions found in sectors like semiconductors and electric vehicles, which benefit from government incentives. Even though inflation is easing, both businesses and households continue to grapple with elevated prices.
A Soft Landing Scenario
This economic slowdown is unusual in its nature, resembling a textbook example of a soft landing—a rare achievement of slowing down the economy without triggering a recession. Inflation has moderated without a significant increase in unemployment, retail spending has decelerated but not collapsed, and the economy is still growing. According to Bloomberg’s latest survey, economists now estimate a 30% chance of a downturn in the next 12 months. This is down from 60% a year ago.
Economic Growth Slows
Upcoming figures are anticipated to show that the economy grew by 2% in the second quarter. This follows a 1.4% growth in the previous quarter, marking the slowest consecutive quarters of growth since 2022. The key question now is how much further the economy will decelerate and for how long. Sarah House, senior economist at Wells Fargo & Co., notes, “Currently, we are still on a path of gradual moderation.” She adds, “There are still many uncertainties about whether changes could occur more rapidly than anticipated.”
Signs of Softening
The slowdown is apparent across various sectors. On Main Street, Suresh Krishna of Northern Tool + Equipment in Burnsville, Minnesota, observes that business remains steady. However, customers are becoming more cautious, particularly regarding high-priced items. In Brooklyn, Avremy Scheinfeld of Abe’s Corner, a kosher restaurant and bar, is reducing staff hours. This decision comes in response to high credit card interest rates impacting his profitability.
Powell Delays Clear Signals on Interest Rate Cuts Amid Easing Inflation
Powell delays clear signals in his speech at the Economic Club of Washington on Monday, refraining from offering explicit guidance on potential interest rate cuts…
Fed’s Outlook and Future Risks
Recent data aligns with a softening trend. June saw a decrease in hiring and wage growth, with the unemployment rate rising to its highest level since late 2021. Bloomberg Economics’ Anna Wong expects the jobless rate to increase from 4.1% to 4.5% by year-end. The services sector also saw its slowest growth in four years, and consumer sentiment dropped to its lowest in eight months.
The Federal Reserve’s latest Beige Book reveals that nearly half of the Fed districts reported flat or declining activity. Fed Chair Jerome Powell expressed increased confidence that inflation is moving towards the central bank’s 2% target, potentially paving the way for interest rate cuts.
Debt and Future Concerns
Despite the positive outlook, red flags persist. Households have accumulated $3.4 trillion in debt since the pandemic, with rising credit card delinquencies and high auto loan delinquency rates. Jon Ferrando, CEO of Blue Compass RV, predicts a continued economic slowdown into 2024. This slowdown is driven by persistent high interest rates and potential political uncertainties.
Analysts draw parallels to the mid-1990s, another period when the Fed successfully navigated a soft landing despite recession indicators. In a recent note, Morgan Stanley’s Seth Carpenter questioned whether the current signs of slowdown might prove to be temporary.
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