The U.S. economy is showing signs that it may be on the cusp of another economic boom reminiscent of the Roaring Twenties. UBS has predicted a 50% chance of a 'Roaring 20s' economic cycle in the U.S., citing current economic indicators that align with this scenario [aa3d6b95]. Jason Draho, head of asset allocation Americas at UBS, noted that the U.S. economy is already meeting criteria for this potential boom, with a GDP growth of 3% in the second quarter of 2024 and a Consumer Price Index (CPI) at 2.5% for August 2024 [aa3d6b95]. The Federal funds rate currently stands at 4.75%-5%, which is seen as conducive to economic growth [aa3d6b95].
Market veteran Ed Yardeni has also expressed optimism about the U.S. economy, suggesting that it is on track for another 'Roaring '20s' period of rapid growth. He attributes this potential growth to a combination of loose post-pandemic monetary policy and rapid technological advancements, particularly in artificial intelligence [aa3d6b95]. Yardeni draws parallels to the original Roaring Twenties, which was marked by a productivity boom driven by technological innovations [aa3d6b95]. Recent data from the Bureau of Economic Analysis supports this optimism, showing that the U.S. GDP expanded by 3.3% in the final quarter of 2023, with the S&P 500 stock-market index trading at all-time highs [aa3d6b95].
However, concerns remain regarding rising unemployment and the potential for a recession. The Sahm Rule, which indicates recession risk, currently shows a reading of 0.57 percentage points [aa3d6b95]. Analysts are also wary of external factors such as the upcoming U.S. elections and ongoing tensions in the Middle East, which could impact economic stability [aa3d6b95]. UBS identifies key criteria for a 'Roaring '20s' outcome, including real GDP growth averaging 2.5% or better, inflation of 2-3%, and a 10-year Treasury yield around 4% [aa3d6b95].
The stock market has had a strong performance recently, with the S&P 500 surpassing key technical levels and benefiting from lower bond rates. However, there are lingering doubts about the sustainability of this growth, particularly in light of signs of a cooling labor market and potential slowdowns in consumer spending [aa3d6b95]. While the recent rebound in stocks was fueled by a retreat of Treasury yields, the reliance on credit cards for spending raises concerns about consumer financial health as interest payments rise [aa3d6b95].
In summary, while the U.S. economy shows promising signs that could lead to a new Roaring '20s, significant risks remain that could derail this potential growth. Investors are advised to remain cautious and consider the broader economic landscape as they navigate these uncertain times [aa3d6b95].