The much-anticipated recession of 2023 has yet to materialize. Some of the latest economic data points to signs of strength rather than weakness.
There is a term for what a strategist says about the state of the US economy.
„We call it a recession,” David Beilin, chief investment officer at Citi Global Wealth Investments, told Yahoo Finance.
He explained how some sectors of the economy have already declined, while others – such as travel and leisure – are still going strong.
„Clearly commercial real estate is in the doldrums,” he said. „Some of our manufacturing, basic consumer manufacturing is in recession right now.”
„Those are the shrinking businesses in the U.S. … but not the economy as a whole,” he explained.
Actually on Friday, The latest S&P Global US manufacturing PMI index was 46.3 versus 48.5 expected. Anything below 50 is short. Overall, however, the survey data pointed to a continued expanding economy.
’Interest rates affect everything’
The Federal Reserve’s task of cooling the economy with rapid interest rate hikes to control inflation is not an easy one. Economists say that if interest rates remain at this level for long, other sectors will suffer.
„Rates ultimately affect everything,” Beilein said. „Small and medium enterprises with capital needs are now left behind. That will eventually limit their growth or cause people to lay off or go out of business.”
The labor market, albeit slowly, continues to add jobs. 399,000 jobs were created in May, compared to Wall Street estimates of 195,000 jobs. Unemployment in the US is at 3.7%.
„I don’t think the labor market hit is yet to come,” Charles Schwab chief investment strategist Liz Ann Saunders told Yahoo Finance earlier this month.
„I think in the next month or two … what companies say about their cost structure, especially labor, is going to be an important word, and that’s potentially the next shoe to drop,” he added.
Until big cracks start to appear, some strategists are careful to call it a recession.
„We have lowered our judgment that the US economy will enter a recession in the next 12 months to 25% (from 35% previously),” Goldman Sachs economists noted earlier this week.
Jay Hatfield, CEO of Infrastructure Capital Management, points to the residential housing sector as an indicator that it’s too early to make recession calls.
„We do not believe we will enter a recession in the U.S. in the short term, as the U.S. housing sector remains resilient due to a lack of homes for sale,” Hatfield said.
Another sign of strength is consumer spending. May retail sales, unadjusted for inflation, rose 0.3% month-on-month, beating estimates for a 0.2% decline.
„Despite expectations, the May retail sales headline showed that consumer spending is resilient,” Oren Klachkin, lead U.S. economist at Oxford Economics, wrote in a recent note.
He added that „recession will be delayed as long as consumers continue to spend.”
For now, the Federal Reserve is playing a balancing act. The central bank put its rate hikes on hold, but warned that one or two more hikes could come later this year to continue the fight against inflation.
On Thursday, Federal Reserve Chairman Jerome Powell reiterated to lawmakers that the central bank expects to raise interest rates again, but at a slower pace to avoid tipping the economy into recession.
Ines Ferre is a senior business reporter at Yahoo Finance. You can follow her on Twitter @ines_ferre
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