WASHINGTON (TIP)- The US economy is now expected to narrowly dodge a recession this year but underlying inflation will be faster than previously thought, according to the latest Bloomberg monthly survey of economists. Gross domestic product is now forecast to only contract in the final three months of the year, and it’s projected to merely stagnate in the third quarter instead of shrink, the June survey showed. While estimates were marked up for the current quarter and next — due to stronger consumer spending and upward revisions to business investment — GDP growth is seen slightly weaker through the end of 2024.
At the same time, economists see the personal consumption expenditures price index, excluding food and energy, rising at a faster pace over the next year than they did in the May survey. That corroborates the Federal Reserve’s view as well, supporting policymakers’ assertion that another two interest-rate hikes will probably be appropriate this year.
According to the median forecast, economists see one more rate hike in the third quarter, with the federal funds rate holding in a 5.25%-5.5% range through yearend before an expected quarter-point cut in early 2024.
The survey of 71 economists from June 16-21 showed stronger views of the labor market. Forecasters mostly see increased hiring this year and next, and they also expect the unemployment rate will peak at a slightly lower level. That helps explain projections for sustained consumer spending.
The findings also support the notion that the housing market bottom has passed. While sales of previously owned homes are struggling for momentum, buyers are seeking new construction and builders have been responding to demand. Economists see that trend continuing with higher new-home sales over the next year and more housing starts.
US jobless claims hold at 20-month high
The number of people filing for state unemployment benefits for the first time held steady at a 20-month high last week, remaining elevated for a third straight week in what may be an early indication of a softening labor market in the face of the Federal Reserve’s aggressive credit tightening.
The housing market, meanwhile, showed further signs of stabilizing last month after standing out last year as the sector most visibly upended by the Fed’s rate hikes. However, selling prices for existing homes – the largest slice of the U.S. residential property market – tumbled from a year earlier by the most in more than a decade, a demonstration of the choppy nature of the recovery underway.
Data from the Bureau of Labor Statistics on Thursday showed 264,000 new claims were filed for jobless benefits on a seasonally adjusted basis in the week ended June 17, unchanged from the prior week’s upwardly revised level, which is the highest level of initial claims activity since October 2021.
Tag: US economy
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US economy seen skirting recession but with sticky inflation
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US economy shrinks again sparking recession fears
WASHINGTON,D.C.(TIP): The US economy has shrunk for the second quarter in a row, a milestone that in many countries would be considered an economic recession. That is not the case in the US, which uses additional data to make that call. But the contraction, at an annual rate of 0.9% in the three months to July, has drawn widespread attention as worries about the economy grow. Prices for groceries, petrol and other basics are rising at the fastest pace since 1981. As the US central bank raises borrowing costs quickly to try to cool the economy and ease price pressures, fears are rising that a recession is coming – if it has not officially started already.
Faced with sinking public confidence, US President Joe Biden has tried to make the case that the economy remains sound, noting that the unemployment rate remains at a low 3.6% and hiring has remained strong. “If you look at our job market, consumer spending, business investment – we see signs of economic progress,” Mr. Biden said Thursday, noting the historic post-pandemic gains the US experienced last year. “There’s no doubt we expect growth to be slower than last year …. That’s consistent with a transition to stable, steady growth and lower inflation.” This week, ahead of the data from the Commerce Department, he told reporters that the economy was “not going to be in a recession”. That prompted his opponents in the Republican party to accuse the White House of trying to redefine the term.
“White House recession ‘rebrand’ won’t reduce Americans’ suffering,” they said. In the first three months of the year, the US economy shrank at an annual rate of 1.6%. At the time, economists attributed the decline in gross domestic product (GDP) to quirks in trade data.
But Thursday’s report showed more marked slowdown, with growth weighed down by declines in the housing market, business investment and government spending. Consumer spending grew at a slower annual rate of 1%, as people spent more on healthcare, accommodation and dining out, but cut back on goods and groceries. Harvard professor Jeffrey Frankel previously served on the National Bureau of Economic Research committee, the group of academics that is charged with making the official declaration of recession.
He said he did not think a recession started at the beginning of the year, noting the strong jobs growth. But after that he was less confident. “Things have already slowed down, so I’m not saying that everything is great,” he said. “Odds of a recession going forward are substantially higher than for a random year.” Inflation in the US hit 9.1% in June, the fastest pace of price appreciation in more than four decades. On Wednesday, July 27, the US central bank responded to the problem with another unusually large increase to its key interest rate, its second 0.75 percentage point rise since it started raising rates in March. By making borrowing costs more expensive, the Federal Reserve is hoping to reduce spending on items such as homes and cars, in theory easing some of the pressures putting up prices. But lower demand also means a decline in economic activity.
Recent reports have shown consumer confidence falling, the housing market slowing, and the first contraction in business activity since 2020. The US stock market has sunk since the start of the year, and companies from social media giant Meta, the owner of Facebook and Instagram, to carmaker General Motors have said they plan to slow hiring. Some other firms, especially in the property sector, have announced job cuts. Federal Reserve chairman Jerome Powell said this week that he did not think the US economy was in recession, but he noted that some slowdown had begun, and more was likely to be necessary for inflation to return to more normal levels.
Just how severe the expected downturn will be remains a matter of heated debate. “The last time we saw inflation this high, in the 1980s, we had a pretty deep recession,” said Laura Veldkamp, finance professor at the Columbia Business School. She said policymakers have learned from that experience, raising hopes for a milder downturn.
But slowdowns in China and in Europe, which has been hit harder by the surge in energy prices from the war in Ukraine, raise risks from abroad. Nor is the US alone in raising interest rates. “Many other countries have more serious problems… and they will very likely get hit and that could spill over to us,” Prof Frankel said. He said it was important to consider factors such as the labor market to determine the start of a recession, noting that some downturns, like the burst of the dot com bubble in 2001, would not qualify as a recession under the two-quarters-in-a-row-of-contraction rule, despite the many jobs lost. Estimates of output in the large US economy often get updated significantly as more data comes in. Even in the UK, there are cases of recessions getting revised away. Politics, he added, has nothing to do with it, at least historically. “Every knowledgeable macroeconomist knows that recession in the US is not defined by a mechanical rule,” Prof Frankel said. “But given the polarization of politics, there are people who are going to be cynical about it and assume the worst.”
(Source: BBC)
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Future of U.S. Economy
By Ven Parameswaran The stock market is a leading indicator of American economy. After President Trump was elected in 2016, the Dow Jone’s Average has jumped from 18,000 to almost 30,000. Because of Coronavirus and subsequent locked-in, the market plunged back to 18,000 by March 23, 2020. From March 23, 2020 to May 27, 2020, the Dow Jone’s has recovered 7540 points in a matter of two short months. This kind of rapid recovery has been unprecedented in the history of the stock market. This is highly remarkable and a very significant factor to gauge future economy. The NASDAQ dominated by trillion-dollar technology companies (Microsoft, Apple, Amazon, Google) have performed even better than the Dow Jone’s. The Nasdaq is now only 5% from its all-time high reached in February before the Coronavirus.
Never before, the stock market has performed breaking all past records. President Trump and his policies have been credited by the investors and all Americans who have their pension funds invested in the market (401-K). Once the market performs, nobody can challenge because all Americans believe in higher wages and prosperity. Americans are wondering how the market could go up so big and so rapidly when the economy has been shut and the unemployment has exceeded historical record of over 20%. How can the market go up when the business of travel, restaurants, retail sales, manufacturing, and others have been stopped because of locked-ins?
The Federal Reserve cut the interest rate to zero per cent. The Federal Reserve is an independent agency. But President Trump pressured its Chairman Powell to lower the interest rate to zero. Now he has asked him to lower it further into negative interest rate so that it will grow the economy. The Federal Reserve has flooded the financial markets, commercial and investment banks, asset management firms, and large hedge funds with approximately 7 trillion dollars. What the Fed has done is unprecedented. Powell, the Fed Chairman has assured the captains of the industry that the Fed will employ all tools available in its hand to help the economy grow. With generous tax cuts and heavy deregulations by President Trump, potential for corporate profits have expanded. In addition, President Trump’s recommendation to the Congress to approve $3 trillion in fiscal support to all Americans, small businesses, and other businesses in distress have helped enormously in recovery of the economy. Generous unemployment compensation of $1200 per week has created unbelievable security and is perking the economy.
Americans received $1200 each and the government postponed filing of tax returns to July from April 15. Proof of climbing retail sales is the result of President Trump’s fiscal support. President Trump and the Congress are working on issuing second installment of $2000 each to drum up the economy.
The combined support from the Fed Reserve and the Congress is equal to 50% of America’s annual GDP of 20 trillion dollars. I would speculate that a substantial amount from this has gone into investing in stocks. Can we not ask how can the stocks skyrocket like this when the economy has been shut down and more than 40 million are unemployed? When the real economy is not generating any income based on productivity, how can the stock go up? President Trump has said that the economy he created is a solid and sound economy. Therefore, when the locked in is over, the economy will rebound and the stock market will go up like a rocket. Proof of the pudding lies in the eating of it. It appears now that President Trump’s prophesies are coming true.Has the Fed Chairman Powell succeeded in playing magic? Or, is this artificial? Who knows? Let me analyze the comments of some vehement Democrats, economists, and industry captains.
JPMorgan Chairman, Jamie Dimon, a staunch Democrat and a candidate for the Secretary of the Treasury in Biden administration stated that the government has been pretty responsive, big companies have the means, hope we keep the small companies alive.” “growing stocks” from the Fed Reserve had helped small business. He said the U.S. economy could see a rapid recovery in the 3rd quarter. He said: “you can already see the positive effects of the current opening, at least for the economy.” The same Jamie Dimon has been highly critical of President Trump just for political purposes. But when his own company and stocks of major banks and financial firms go up, he cannot but tell the truth.
Michael Darda, MKM Partners Chief Market Strategist and Chief Economist said: “The market has been making a V-pattern upward and there has been a tremendous amount of skepticism around that but we are just starting now to see some evidence in the data turning some better than expected Housing numbers. As reopening gets underway, virtually all states now we are starting to see activity bounce off of very low levels.”
On Wednesday, May 27, the Mortgage Bankers Association reported a sixth straight weekly rise in mortgage applications. Data released Tuesday showed NEW HOME SALES in April topped estimates. Sales of new U.S. SINGLE FAMILY HOMES increased by 623,000 in April, beating estimates of 490,000.
Wharton School of Business Professor Jeremy Siegel told that new stock market highs this year is a ‘REAL POSSIBILITY’. Absent a second wave of Coronavirus later in the Fall, it is “even a likelihood that we will reach “fresh record highs.” This kind of over optimism from conservative and liberal economists is unprecedented.
“One of the unfortunate things about the lockdown is we have actually improved the prospects of the very companies in the stock markets.” Siegel added. “In fact, given no serious second wave, which could mean just effective therapeutics without even a universal vaccine, my feeling is it is even a likelihood that we will reach fresh record highs.” Siegel said.
(The author is a former President & CEO, First Asian Securities Corporation, NYC. His successful trading strategies on the day of 1987 stock market crash was highlighted by the WSJ. He lives in Scarsdale, N.Y. He can be reached at vpwaren@gmail.com)
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Restarting America
It may be accepted that waiting to restart all sectors of the economy simultaneously will unnecessarily keep some sectors shut that actually can be re-engineered to open without much further delay.
America should restart its economy and other operations by mitigating risk and making sure that it is done right to be able to succeed at the effort. While playing safe and delaying it beyond May 2020 may sound like the appropriate step to take, we should also know that it brings with it a loss of about two trillion dollars and a consequential setback worth several trillion dollars more every month. On the other hand, restarting America early may bring the risk of extending the misery due to COVID-19. There is no way to come to an optimized solution to this problem. It will have to be made by guts and appetite for risk-taking. We have to carefully look at several pro and con aspects and decide.
Restarting the economy would be especially important because some estimates tell us that the effect of coronavirus could hang on until August 2020 or even later. A shutdown of that magnitude no economy will be able to handle. Moreover, some say that coronavirus would come back with an even greater vengeance as cold season returns in the fall. The economy has to be ready to cope with that if it does indeed happen. In fact, the longer the U.S. economy remains in this dormant state, the longer it will need to get restarted, harder to bring it back to its past size and the greater irreparable harm it will cause.
To restart the economy, we will look at the type of operations deployed for product and service transformation. There are certain operations that are large, both in terms of the size of employment and contribution to the gross domestic product. This list includes businesses such as restaurant, retail, sports and entertainment, education and training, and travel and tourism that can be restarted with proper and careful reconfiguration, adaptation of technology, redesign and/or creative reinventing of their processes, workflows, and scheduling. Their restart can be begun in a matter of weeks.
We can formulate standards of operating for those large organizations that have more machine and technology interface and reduced human interactions. Such outfits include manufacturing, service processing, fulfillment centers, etc. The restart of these businesses will depend on how soon each of them comes up to these standards.
Taking the calculated risk of restarting this economy that had been willfully put to sleep rather than shut down because of an external one-time mishap will be unavoidable. It will have to be woken up with whims, such as presidential or gubernatorial executive orders . The alternative in the form of slower legislative processes will likely cause a long-lasting recession or depression or deep depression, as some are stating.
Moreover, no matter when we restart the economy, given the politically ultra-divided America and the anxiety over the upcoming presidential election, opposition to any proposal to restart is bound to be there. That is why, we have to move fast and devise a scheme to open the economy and begin the restarting in weeks rather than months. It may be accepted that waiting to restart all sectors of the economy simultaneously will unnecessarily keep some sectors shut that actually can be reengineered to open without much further delay.
Utilizing the countrywide state by state and county by county data on coronavirus already collected by the White House, we can sectorize our economy and get what can be started within weeks by presidential order and what will need congressional action. The latter will have to be started soon and completed on an expedited basis.
Operations that need longer will be restarted applying science, engineering and technology. Our effort should be to redesign human and machine interactions, human-to-human contacts, and group interfaces, all with the goal to mitigate the risk of any second or later legs of COVID-19. We should also work to adapt and design or redesign technologies, operations, and communication systems for keeping workers safe from all similar communicable diseases. This should also make the companies become even more productive.
America should use COVID-19 experience as a way to emphasize self-dependence for the production and distribution of all goods, services, processes, and technologies. This experience has taught us that all these are important and not just the essential ones.
We should also work to make sure that we bring back manufacturing to the USA and place requisite importance on research to help us achieve this self-dependence in an economically competitive way. The White House should continue to exert pressure to make sure that American business invests in the goal of self-dependence. Furthermore, we should make sure that our businesses set research and development intensity to achieve the goal.
We should also fight COVID-19 worldwide and help other countries restart their economies, replicating what we did to put the world back to work after the two world wars.
( A. D. Amar, Ph.D. is Professor of Management at the Stillman School of Business, Seton Hall University, South Orange, NJ 07079 (ad.amar@shu.edu). He was one of the three academics who endorsed Donald Trump for president in 2015, much before the primary elections of 2016. Later, he founded Indian-Americans for Trump 2016, a PAC, registered to promote Trump for president)