Recession, recession, recession. The calls are getting so loud you’d still hear them even if you covered your ears.
Here’s Joseph Little, global chief strategist at HSBC Asset Management: “The coming recession scenario will be more like the early 1990s recession, with our central scenario being a 1-2% drawdown in GDP.”
JPMorgan Chase’s top strategist Marko Kolanovic: “We expect a more challenging backdrop for stocks … given the decelerating economy and a likely recession starting in 4Q23/1Q24.”
Baupost Group Chief Executive Officer Seth Klarman: “The goal of the Fed is to reduce the heat in the economy, and one way to do that is to trigger some kind of recession … so maybe it’s an early 2024 event.”
Yet fresh economic data from the U.S. showed a resilient economy that, with luck, might eventually defy those predictions.
Consumer confidence rose more than anticipated to hit the highest level since January 2022; the proportion of respondents expecting a recession declined four percentage points (though it’s still high at 69.3%).
The housing market, generally an early indicator of a downturn, also showed surprising strength. New home sales in May rose 12.2% from April — economists were expecting a drop of 1.2%. Home prices in April increased 1.3% month over month, according to the Case-Shiller index, a closely watched gauge.
Demand for durable goods, which are typically big purchases like televisions and transportation equipment that require long-term payments, accelerated 1.7% in May. That’s faster than April’s 1.2% increase and far more than the Dow Jones estimate of a 1% decline.
All those data show that the U.S. consumer isn’t yet buckling under higher interest rates and (ostensibly) dimmer economic prospects.
And if Wolfe Research’s Chief Investment Strategist Chris Senyek’s expectation for “the U.S. consumer to be the #1 driver of the economic outlook” proves right, then that strength in consumers might allow the U.S. economy to fend off a recession, despite a chorus of voices predicting one.
