Is the US Headed for a Recession?
Recession Watch 2024: It’s time to revisit the matter of the recession threat. There are plenty of factors that might conspired to send the stock market, housing market and whole economy spiraling downward to rough landing.
Yes, you’re wondering about the possibility as many others are. The general consensus is that the FED hasn’t overshot with its 15-month high rate persistence, and that expected rate cuts will rev the economy up fast.
You’ve seen the crushed housing market with it’s locked in/high price misery and wondering how that might end. You’ve seen the stock market’s high speed wobbles of late, wondering if those precede a stock market crash. And you see intense political fighting and wondering what will result after Nov 8th.
Jeremy Siegel, professor emeritus of finance at University of Pennsylvania’s Wharton School of Business and Wisdom Tree chief economist believes the FED needs to make a big rate cut in September, suggesting the economy is bad shape. But this might alarm investors setting off a panic selloff.
One expert, Danielle DiMartino, the CEO & Chief Strategist for QI Research and former advisor at the Federal Reserve Bank of Dallas believes we’re already in a “plain vanilla recession.” That counters some sentiment of other analysts who believe this one somehow unique. She explains in this interview with Fox Business.
With consumers in a good financial position, the jobs market okay, and plenty of cash on the sidelines, a rate cut might create a boost. Oil prices look like they will drop and President Trump says he’ll cut taxes if elected. These big picture factors are hard to ignore.
So the case for a recession is weak.
However, Jan Hatzius, Goldman Sach’s chief economist and head of global investment research says the chance of a recession grew from 15% to 25% after last week’s US jobs report. He thinks the Fed will cut by 25 basis points in September. Some economists are asking for 50 basis points in an emergency lift.
When the FED drops rates, it sends a bad signal to investors that the immediate economy is not good and that earnings might drop. That can produce a stock market pullback.
How do investors feel about the 6 month forecast?
See the 13 key signals of this recession below and consider that they’re all strengthening. We don’t have to have a recession. It’s the government’s decision to stoke the fires with more gasoline (interest rate hikes) on a credit driven economy, and stifle US energy supply. Oil prices play a big role in a recessionary picture, yet other signals too are flashing.
What’s vital in this scenario is that if the FED cuts to create the glorious freedom of markets, inflation has to follow. There’s too much stimulus money still in the system combined with massive latent demand for homes and consumer products. The US looks good too and thus there is opportunity for US companies to produce goods and services and export them. That will raise commodity prices and producer costs. Inflation has to happen.
Low interest rates will stimulate the housing market and could save the commercial real estate market from crashing. Low rates will prevent real estate foreclosures and encourage builders to start building again. All good things but it will cause inflation. Inflation re-ignition isn’t being talked about right now. That’s a problem.
And when the inflation picks up, the FED will look silly and unprofessional, thus losing credibility it may never have had. The media and economists believe the FED will cut in 3 weeks, and maybe they will do it just to confirm the restart of inflation.
The conference board believes there won’t be a recession but says US GDP is falling.
Unemployment is rising, corporate earnings are falling, while wars are on the horizon and rates are still high.
Mortgage rates and credit card rates are high and bankruptcies are rising. Rates won’t be falling fast. Homeowners will get desperate to refinance at a small discount in rates. They’ll be house poor shortly and they’re in fear of a housing market price drop when homes begin flooding the market next year.
So is a hard landing a certainty then?
The Real Economic Problem Hasn’t Been Resolved
The key issue has always been the government-based throttling of US production. They did it to support production in China where billionaires have parked their money for decades. What’s brewing is a vicious battle between working Americans and the wealthy multinational corporations and billionaires. The battles in the UK are said to be racially or immigration related, but in fact, working people are poor and feeling they don’t have much of a future. This growing feeling of disappointment and dejection in most citizens, worn out by poverty, homelessness, crime, and hopelessness is a factor to watch.
That battle along with the impending war in the middle east means geopolitical strife may be the number one cause of the next recession. The battle between the Democrats and Republicans will result in civil unrest too. But will it be enough at the right time to create a recession?
6 years ago when I wrote this post, experts predicted the next recession would be 2020. Back then the Trump admin was enjoying success so a Democrat return was not expected. They didn’t know a virus would be released in 2020 just as the US economy was roaring. By complete accident, their prediction came true.
This time around, with China struggling, geopolitical strife could cause spending to sharply contract as money is pushed into the military.
Stimulus Cash Turned Out to be Excessive
15 Signs the US Economy is Losing Momentum
Are we headed for a recession? When 15 key signals flash red, it’s time to pay attention.
- retail sales falling
- consumer, producer, small business, and builder sentiment dropping
- buyer demand for homes down
- home prices dropping
- bankruptcies and debt defaults increasing
- start up funding down
- stock market showing weakness
- key commodity prices remain high
- inflation persists eroding consumers capacity to spend
- Democrats stick to high tax intentions pushing money out of the US
- yield curve is dis-inverting — precedes a recession
- coporate earnings beginning to recede
- small businesses struggling
- big corporations laying off workers
- unemployment rising
This is what Zillow panelists believed back in 2017: Geopolitical events (conflict with Russia), Restrictive Monetary Policy (Powell, Yellen, Biden) and world trade changes (deglobalization, regulation, and inflation), along with political gridlock (post mid term results). Is anything different today in 2024?
Additional recession cues:
- stimulus withdrawal – gov spending and M2 money supply shrinks
- US dollar falls as China/Russia conspire to dethrone the US dollar
- taxes rising
- more business regulation
- high oil prices
- government debt out of control ($35 trillion) and interest payable on debt ($1 Trillion) annually grows
- ballooned Federal government budget deficit means government spending beyond its means
- government tax revenues falling
- high corporate debt unable to service
- high consumer debt to income
- trade wars get out of hand (countries protect their own economy)
- socialist Democrats win Nov8th election, but can’t spend
There are a lot of people who believe that economic cycles are natural not engineered, and that this bull economy must die. 2020 is the year they believed it was to happen, but now it’s pushed forward 3 years to 2023.
Consumer Sentiment Goes up and Down with the Tide
What do consumer’s think? They’re rating is actually in the low range, so they sense things aren’t good. They know about inflation, job losses, rent and house prices, and their earnings outlook, and collectively it’s heading downward, much lower than the pandemic shutdown, toward the lows in 2022 during the massive FED rate hikes.
With the FED, US elections, and geopolitical tensions, it’s difficult to time a recession.
See more on a potential stock market crash and the effect of the Trump Tariffs.
