Is the US Economy Heading for a Recession?

The US economy is showing signs of potential weakness, with several indicators pointing towards a possible recession. Here's a summary of the current state of the US economy:

1. Purchasing Managers' Index (PMI): The S&P Global US Manufacturing PMI was 49.8 in June 2023, indicating a slight contraction in the manufacturing sector. This could signal a slowdown in economic activity.
   
   
2. Leading Economic Index (LEI): The Conference Board's Leading Economic Index for the US declined by 0.7% in May 2023, marking the tenth consecutive month of decline. This is a significant indicator of a potential recession.
   
   
3. Consumer Confidence Index: The Conference Board's Consumer Confidence Index decreased to 106.4 in June 2023 from 108.7 in May. This suggests a decline in consumer confidence, which could impact spending and economic growth.
   
   
4. Initial Jobless Claims: Initial claims for unemployment insurance benefits have remained relatively low, with 235,000 claims reported for the week ending July 15, 2023. However, this is an increase from the previous week, which saw 230,000 claims.
   
   
5. Housing Starts and Building Permits: Housing starts fell 8.0% in June 2023, while building permits decreased 3.7%. This suggests a slowdown in the housing market.
   
   
6. Corporate Profit Margins: Corporate profit margins have remained relatively stable, but there are concerns about rising costs and inflation impacting future profits.
   
   
7. Credit Spreads: Credit spreads have widened slightly, indicating increased risk in the corporate bond market.
   
   
8. Stock Market Performance: The S&P 500 has experienced volatility, with a decline of 0.2% over the past month. The VIX, a measure of market volatility, has jumped up considerably in recent days.
   
   
9. Retail Sales: Retail sales increased by 0.2% in June 2023, suggesting continued consumer spending.
   
   
10. Industrial Production: Industrial production decreased by 0.5% in June 2023, indicating a contraction in the manufacturing sector.
    
    

The inverted yield curve, which has historically been a good recession predictor, has been inverted for an unusually long period without a recession materializing. The Sahm Rule, another recession indicator, is currently signaling a recession based on the unemployment rate. The VIX, which has jumped up considerably in recent days, along with the markets selling off from recent highs on growing trading volume, could signal increased market volatility and uncertainty.

Despite these concerns, the stock market has remained resilient, with the S&P 500 up double digits. However, bank credit growth is near 0%, and credit card debt is soaring. The Federal Reserve has raised interest rates multiple times in an attempt to control inflation, which could further impact the economy.

While there are signs of economic slowdown, the overall consensus is that the Fed will have to cut rates in the coming years as inflation comes down. However, the economy is not slowing down as much as expected, and the unemployment rate remains relatively low.

In conclusion, while there are risks of a recession, the US economy has shown remarkable resilience over the past couple of years. It remains to be seen whether the economy will achieve a soft landing or if a recession is on the horizon. However, economist predict that there is a 50-70% we are heading into a economic recession. The indicators above support this. 

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Des W Woodruff
linkedin.com/in/deswoodruff