Warnings about a slowing US economy and potential recession have been voiced; however, key indicators suggest resilience. The Conference Board's Leading Economic Index (LEI) showed a slight decline of 0.2 percent in June 2024, bringing the index down to 100.4 (2016=100). In July, the annualized six-month change improved slightly to -2.1 percent from June's -3.1 percent, indicating that while the economy is slowing, the risk of a severe recession may be less than previously feared. Justyna Zabinska-La Monica, Senior Manager at The Conference Board, noted that widespread weakness among non-financial components, particularly in new orders and consumer expectations, has contributed to this trend. [c0bcf5ef]
Adding to this perspective, economists from the University of Michigan predict a slowdown in the US economy but do not foresee a recession. They forecast real GDP growth to decline from 2.8% in Q2 2024 to 2.1% in Q3 and further to 1.3% in Q4. The unemployment rate is projected to peak at 4.6% in Q2 2025, reflecting a cooling labor market. The Federal Reserve is expected to reduce the federal funds rate steadily through spring 2025, which may help mitigate the slowdown's impact. [66820cdd]
Recent data from the Bureau of Economic Analysis has revised last year's growth to 2.9% from 2.5%, adding $294.2 billion more economic activity over five years. The inflation-adjusted gross domestic income was also revised to show a 1.7% increase from a previous estimate of 0.4%. The GDP forecast for Q3 has been updated to 2.8% from 2.5%, with potential for growth to reach 3.0%. Initial jobless claims have returned to the pre-pandemic average of 218,000, indicating a robust labor market. August also showed a solid rebound in core capital goods shipments and orders, while July retail sales aligned with forecasts, suggesting consumer spending remains strong. [ecce0d8f]
Despite these indicators, other economic signals do not point to drastic contraction. For instance, the Michigan consumer sentiment index has recently dropped to a six-month low, reflecting ongoing consumer concerns since the pandemic began. Existing home sales have also decreased for the 19th time in the past 21 months, with low inventory levels persisting. The LEI has now fallen for 19 consecutive months, reaching its lowest level since May 2020. However, the overall economic outlook appears to be stabilizing, with expectations for a mild recession in the second half of next year due to higher interest rates. The Gross Domestic Product (GDP) is forecasted to grow only 0.6 percent annualized in Q3 2024 and 1 percent in Q4 2024. The upcoming week will provide crucial data on consumer confidence, GDP, and inflation, which will further illuminate the state of the U.S. economy. [b0e9bde9]
Adding to the discourse, former Treasury Secretary Robert Rubin stated on September 4, 2024, at the Bund Summit in Shanghai that while the U.S. economy is slowing, it still retains some momentum. Rubin expressed confidence in the actions being taken by the U.S. Federal Reserve, suggesting that they are appropriate given the current economic climate. He also pointed out that former President Donald Trump poses multiple risks to the economy, highlighting the complexities of the current economic landscape. [87bbba5d]
In light of recent developments, the Federal Reserve is expected to cut interest rates by 25 basis points next week due to easing inflation, with headline inflation falling below its 20-year average for the first time since 2020. Core inflation remains high, particularly in services, which could complicate the Fed's decisions moving forward. [d8cb1ef9]
Moreover, oil prices dipped to their lowest since December 2021 before Hurricane Francine, influenced by global growth and supply factors. Gold prices are on the rise despite mixed US job data, reflecting investor caution. Bond yields have also shown historical declines, indicating recession risks, while strong corporate earnings and employment trends may delay the anticipated recession. [d8cb1ef9]
The ISM Manufacturing Purchasing Managers’ Index (PMI) has been closely monitored, remaining below 50 in recent months, indicating contraction in the manufacturing sector. Expectations for the upcoming release are an increase from last month's 46.7 to 47.6. A small disappointment or beat is more likely, which would either extend current trends or trigger a short-lived correction. The US Dollar is anticipated to decline on further signs of a slowdown. [408c1003]
Despite the economic challenges, some sectors are showing resilience. Bitcoin, which dropped from $70,000 to $50,000, has since bounced back to over $60,000, reflecting volatility in the cryptocurrency market. Investors remain hopeful that the Federal Reserve can intervene by lowering interest rates if necessary, as traditional and alternative indicators suggest the global economy might face more uncertainty ahead. New technological advances could also drive further economic expansion, although the acceleration may be unstable in this late growth stage. [c0bcf5ef]