US recession Is Likely To Come Through Consumption
They don’t call us vain scientists. Nearly 75% of economists surveyed in July by the National Association for Business Economics are seeing a recession in the US by the end of 2021. However, if you ask for data to support this forecast, you will not get consensus ones. There are many theories about trade wars. US growth has slowed. But the usual balloons and imbalances that trigger a recession are not yet visible, writes for the Financial Times Megan Green, a senior at Harvard Kennedy School.
With consumption accounting for almost 70% of growth, the recession must be transmitted through the US consumer. The main question is when. The good news, for now, is that Americans remain steady consumers. Consumption grew 4.7% annually in the second quarter, the fastest pace in four years. Retail sales were also strong, with core sales (excluding the volatile categories) accelerating between May and July at the fastest pace of more than 15 years. Bloomberg’s measure of consumer comfort for personal finances, which includes wage growth and stock prices, is nearing a 20-year high.
Job creation overall slowed down this year, reaching an average of 145,000 a month, up from 215,000 last year. This is the slowest pace since 2010. Given that the unemployment rate is only 3.7%, this is hardly a signal for alarm. Wage growth remained strong at 3.2% y / y in August, economic activity actually increased, and two early warning indicators on the labor market — temporary positions and weekly hours worked — intensified.
According to the recession indicator of Federal Reserve economist Claudia Sam, employment data practically does not light the red light for the next two years. It is worrying, however, that, as New York Branch President John Williams says, “consumers now bear all or most of the burden of continued growth.”
Other presidents of the Fed’s regional branches tell me that local business executives report uncertainty about trade, slowing down investment and costs. They see a vulnerability to further escalation of trade tensions that causes permanent and temporary cuts. The industry — highly exposed to trade risks — is witnessing a significant slowdown in hiring rates. Data indicates that we are already in an industrial recession. Higher costs for raw materials due to customs duties can also reduce profits to the extent that companies shrink staff. S&P 500 companies’ profits declined in the first half of this year. Most analysts expect a further decline.
Americans can also cut costs if the stock markets undergo a lasting correction. Declining profits and titles and tweets that undermine CEOs’ confidence can also scare away investors. In the event of a stock market crash, shareholders may worry that their wealth is evaporating and limit spending. Because the wealthiest 10% of households own about 85% of all US-owned stocks, a market correction may not in itself contract, but may contribute to a sharper economic slowdown.
Market crashes, headlines for trade wars, noisy recession warnings and overwhelming presidential tweets can shake consumer confidence. Although still high historically, surveys showed a decline in consumer sentiment in August. A new poll finds that 60% of Americans expect a recession next year.
All these paths to lower consumption are only possible at this time. But as Dallas Branch President Rob Caplan warned, “If you wait for the user to show weakness, it will turn out that you have waited too long.” will come. We must monitor all channels that lead to consumers, meanwhile following the wise advice of economist Edgar Fidler, who once suggested, “If you have to forecast, do it often.”
