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Analyst Sees 25% Chance of Recession by 2024, But Productivity Boom May Moderate Inflation

  • Market analyst Ed Yardeni raised odds of a recession before end of 2024 to 25% from 15%, citing higher oil prices and widening deficits.

  • Oil's rise follows OPEC production cuts weighing on supplies, which are falling behind demand.

  • But unlike 1970s, tech-driven productivity boom will moderate inflation and compensation growth.

  • Yardeni estimates 4% productivity growth this decade as tech makes sectors more efficient.

  • While oil prices spiked triple digits in 1970s, today's strong dollar blunts a dramatic crude price rise.

businessinsider.com
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The US economy has exceeded the Federal Reserve's estimate of its growth potential in recent years, with growth averaging 3% under President Joe Biden, but concerns about rising public debt and inflation, as well as the Fed's efforts to control them, may lead to slower growth in the future and potentially a recession. However, there are hints of improving productivity that could support continued economic growth.
Despite optimistic economic data and the belief that a recession has been avoided, some economists and analysts believe that a recession is still on the horizon due to factors such as the impact of interest rate hikes and lagged effects of inflation and tighter lending standards.
Recent profit reports from companies such as Amazon, Walmart, and Home Depot, along with other consumer statistics, indicate that the case for a 2023 recession is weakening, as the consumer economy shows resilience with rising real incomes, substantial savings, and continued spending in sectors like automobiles and services.
Despite the optimism from some economists and Wall Street experts, economist Oren Klachkin believes that elevated interest rates, restrictive Federal Reserve policy, and tight lending standards will lead to a mild recession in late 2023 due to decreased consumer spending and slow hiring, although he acknowledges that the definition of a recession may not be met due to some industries thriving while others struggle.
Stocks are overvalued and a recession is expected in the first half of next year, according to economist Steve Hanke. He predicts that inflation will cool, Treasury yields will fall, and house prices will remain stable.
Investors are speculating about the likelihood of a recession after recent data showed a decline in job openings, and Key Advisors Wealth Management CEO Eddie Ghabour believes that the market is not prepared for a recession and it could bring about significant volatility. Ghabour highlights factors such as the JOLTS data, earnings season results, and housing market data to support his recession forecast. He also mentions concerns about rising inflation and its impact on the bond market. Ghabour predicts that a recession could lead to a double-digit drop in equity markets and suggests buying the long end of the Treasury curve as a top trade if a recession occurs.
Fidelity International's Salman Ahmed maintains his prediction of a recession next year, citing the full impact of the Federal Reserve's monetary policy tightening and a wave of corporate debt refinancing as leading factors.
Goldman Sachs has lowered its probability of a U.S recession in the next 12 months to 15% due to positive inflation and labor market data, while also predicting a reacceleration in real disposable income and expecting the Federal Reserve to keep interest rates unchanged.
Despite weak economic news and concern over a slowing economy, there is still optimism among investors that a recession is unlikely.
Goldman Sachs chief economist Jan Hatzius has revised his forecast for a U.S. recession in 2023, lowering the probability from 35% to 15% due to positive inflation and labor market news, while still expecting a mild economic slowdown.
The global economic slowdown and U.S. recession risks are causing concern among officials, with experts discussing recession forecasts and advising investors on portfolio and sector strategies.
Despite recent optimism around the U.S. economy, Deutsche Bank analysts believe that a recession is more likely than a "soft landing" as the Federal Reserve tightens monetary conditions to curb inflation.
Despite positive economic growth and low unemployment rates, several major indicators suggest that the American economy under President Joe Biden is heading towards a recession, with high government deficit numbers indicating possible overspending to prevent a recession before the 2024 election.
The possibility of a recession should not be dismissed by equity investors despite recent stock market rallies, warns economist Michael Darda, who notes that historical data shows that recession typically follows an inversion in the yield curve within an average of 14 months.
Former Goldman Sachs partner Abby Joseph Cohen believes that while a recession is not the most likely scenario, the probability of an economic downturn has been increasing in recent months due to weakening tailwinds and potential political issues.
The US economy is facing a looming recession, with weakness in certain sectors, but investors should not expect a significant number of interest-rate cuts next year, according to Liz Ann Sonders, the chief investment strategist at Charles Schwab. She points out that leading indicators have severely deteriorated, indicating trouble ahead, and predicts a full-blown recession as the most likely outcome. Despite this, the stock market has been defying rate increases and performing well.
The odds of the U.S. entering a recession by mid-2024 have decreased, but certain regions, such as the West and South, are still more vulnerable due to rapid economic growth, high home prices, and inflation, according to Moody's Analytics. However, a severe downturn is unlikely, and the Midwest and Northeast are less susceptible to a pullback. Overall, the chance of a recession has declined nationwide, but there is still a risk for some metro areas, such as Austin, Boise, Ogden, and Tampa.
The risk of a global recession in the next 12 to 18 months is high, with financial markets underestimating the chances of a recession in the United States, according to PIMCO executives.
Jeremy Grantham warns of a looming recession by early 2025, expresses concerns about US stock market, economy, and financial system, discourages investment in real estate and commodities, but supports climate-change stocks like Tesla.
Entrepreneur Jaspreet Singh warns that signs of a potential recession in America include labor shortages, inflation-driven spending, and high interest rates, with economists predicting that the country may start feeling the effects of a recession by the second quarter of 2024. Singh advises Americans to educate themselves about saving money and investing to prepare for the possible downturn.
The era of infrequent recessions may be coming to an end, as economists predict that boom-and-bust cycles will become the norm again due to growing national debts and inflationary pressures.
The Federal Reserve has paused raising interest rates and projects that the US will not experience a recession until at least 2027, citing improvement in the economy and a "very smooth landing," though there are still potential risks such as surging oil prices, an auto worker strike, and the threat of a government shutdown.
The forecasted U.S. recession in 2024 is expected to be shorter and less severe than previous recessions, with the economy's interest-rate sensitivity much lower due to reduced leverage and elevated savings from the postpandemic environment, leading investors to consider positioning for investment opportunities that will drive markets into 2024.
The US economy has triggered the fourth and final signal for a potential recession, and historical data suggests that recessions will become more frequent in the future due to government interventions and other factors such as inflation, tightening monetary policy, oil price spikes, and tight government budgets.
There are four risks that could potentially push the US economy into a recession sooner rather than later, including a weakening labor market, headwinds for the consumer, high borrowing rates, and the rising chances of a government shutdown, according to Raymond James.
Economists are accurate at predicting recessions in the near future but become less precise as the prediction timeline extends, according to a study by an economist at the Federal Reserve Bank of St. Louis.
Deutsche Bank's economists are still predicting a US recession despite the ongoing resilience of the economy, pointing to rapidly rising interest rates, surging inflation, an inverted yield curve, and oil price shocks as the four key triggers that historically have caused recessions and are currently happening.
Fidelity Investments' global macro director believes that a recession could lead to a significant rally for Bitcoin, with the potential for prices to reach $96,210 by the end of 2025 if interest rates decline. He also suggests that Bitcoin's correlation with equities has decreased, making it a potential source of uncorrelated returns in the next market cycle.
Investors and experts differ on the timing, but many believe a recession is inevitable in the near future due to falling consumer confidence and a slowing economy, prompting discussions about the Federal Reserve's interest rate moves.
Market veteran Ed Yardeni predicts a year-end rally in the stock market, driven by strong corporate earnings and resilient economic growth, despite potential risks from higher interest rates.
Falling bond prices in the US, resulting in higher Treasury yields, suggest that a recession might be approaching, according to investor Jeff Gundlach, who is closely watching the upcoming jobs report for further signs.
Falling U.S. bond prices and the rapid normalization of the Treasury yield curve are signaling that a recession may be imminent, according to DoubleLine Capital founder Jeff Gundlach, who will be closely monitoring the September jobs report for further clues.
The economy is not likely to enter a recession until late 2024 or 2025, and metro Phoenix is expected to perform better than other parts of the country, with Arizona projected to grow three times faster than the U.S. However, there is still uncertainty as key indicators point in different directions, and experts are monitoring factors such as inflation, job growth, and interest rates.
A new report warns that a recession may be imminent as employment, business optimism, and output continue to decline, with companies struggling to maintain staffing numbers and cope with higher borrowing costs and weaker customer demand.
Fannie Mae has revised its prediction for a mild recession in the US economy, now forecasting it to occur in the first half of 2024, as consumer spending continues to outpace incomes and previous interest rate increases by the Federal Reserve take effect.
The chances of the U.S. economy avoiding a recession are improving, with recession odds dropping to 46 percent, the lowest since the first quarter of 2022, according to economists surveyed by Bankrate. However, risks of a recession remain, with more than 2 in 5 economists suggesting that the chances are still greater than 50 percent.
Yardeni Research raises the risk of a recession before the end of next year to 30% due to the start of the Israel-Hamas war, with concerns over the possibility of a prolonged conflict, potential involvement of Hezbollah, and the impact of tightening sanctions on Iran's oil exports.
Economists are predicting that the U.S. economy is less likely to experience a recession in the next year, with the likelihood dropping below 50% for the first time since last year, thanks to factors such as falling inflation, the Federal Reserve halting interest rate hikes, and a strong labor market.
Despite high interest rates and sluggish GDP growth, analysts predict that the UK will avoid a recession due to a likely end to rate increases, falling inflation, and a return to real pay growth.
The U.S. economy is facing risks in 2024 as inflation remains high and interest rates are historically high, leading to concerns about a potential recession; however, the Federal Reserve is optimistic about achieving a soft landing and maintaining economic growth. Economists are divided on whether the Fed's measures will be effective in avoiding a severe recession, and investors are advised to proceed cautiously in their financial decisions.