the US economy slows but does not enter a recession; Expectations failed

Clara Zepeda

La Jornada newspaper
Sunday, July 23, 2023, p. 14

The economic recession did not reach the United States, as the economic activity of Mexico’s main trading partner, although it slowed down, continued to show sufficient dynamism to continue growing.

As of August 2022, most economists were expecting a recession in the United States within the next 12 months. However, the recession did not hit. In proof of this, there is data on jobs created and vacanciesreassured Ramsey Gutierrez, co-manager of investments at Franklin Templeton Mexico.

After more than 300 days of such forecasts, there are now more and more recognized professionals in the United States who agree that the country will avoid a recession, with increasing expectations that there will only be one hike in interest rates.

Views have shifted from worrying about a recession for more than a year to thinking it may not happen. In recent days, some experts have expressed the view that even with a wave of higher interest rates, consumer weakness and tighter credit conditions, the United States can avoid a recession, as described by wealth builders.

Goldman Sachs cut the probability of a recession to 20 percent from 35 percent because it believes the storm clouds gathering over the country’s economy are starting to lift.

It happened despite the fact that the interest rate yield curve, a telltale sign of a recession, remains deeply inverted. The strong growth momentum starting in the third quarter will help offset mounting drag from a cut in bank lending, which has stalled in recent weeks.Goldman commented.

Federal Reserve actions

Fueling the better sentiment is a strong rebound in domestic demand, which posted an annual increase of 2.6 percent in the second quarter.

Goldman Sachs also pointed to signs that manufacturing, which has been in a contraction for months, is finally bottoming out. He also noted that home sales They no longer deterioratebut it is gradually declining, which gives some hope to this sector.

Meanwhile, Citi’s economic surprise index, which compares actual readings with expectations, is nearing its highest level since mid-March 2021. Investors still expect the Federal Reserve (Fed) to raise benchmark interest rates when it meets this week, but Citi considered that this could be the last hike in 2023.

The Bank of America’s July survey of global fund managers saw a shift in those who expect a recession. And while 48 percent still see a global recession by the end of the first quarter of 2024, the number of those who don’t expect a recession has risen to 19 percent, an increase of 5 percentage points since June. Finally, those who expect a Soft landing of the economy rises to 68 percent, compared to 21 percent of those who see a hard landing.