The United States: Prospects for an Economic Soft-Landing Scenario
2024-09-26
■ In September, the US consumer confidence index dropped significantly, and there was an increase in responses regarding "poor" economic and employment conditions
■Multiple economic recession signals light up, and the consumer confidence index also suggests that the economy is about to enter a recession
The September US Consumer Confidence Index released yesterday (98.7, down 6.9 points month-on-month) was the largest decline in three months, with detailed data showing a decrease in both the current situation index (124.3, down 10.3 points month-on-month) and the expectations index (81.7, down 4.6 points month-on-month). This index is based on a survey of 5000 households. The current situation index consists of two items (economic and employment status), while the expected index consists of three items (economic, employment, and income prospects for the next six months). The answer options include "good", "unchanged", and "poor". In September, the gap in the proportion of "good" and "poor" answers narrowed in five projects (the gap in the proportion of answers widened in projects where "poor" exceeded "good"). Especially in terms of the economic and employment situation, the proportion of "poor" answers has significantly increased, and the current situation index has dropped to the lowest level since 2016, except for the sharp decline caused by the 2020-21 pandemic lockdown.
The author pays special attention to the current situation index in the Consumer Confidence Index as an early warning indicator for the economy. According to historical data, when the current situation index drops sharply in the short term, the economy often falls into recession. If the highest point of the 3-month average in the past year is taken as the benchmark, a decrease of 20 points can be used as a warning standard for economic recession. The latest value for September (a decrease of 19.1 points) shows that the current situation index has been declining for seven consecutive months, but has not yet triggered a signal of economic recession. In the July US employment data released on August 2, the economic recession indicator of the Sahm Rule has exceeded the threshold of 0.5%. Since September 5, the short-term interest margin (the yield margin of the US two-year and 10-year treasury bonds) in the US treasury bond market has changed from negative to positive, and the reverse yield phenomenon has been eliminated. Despite multiple early warning indicators issuing warnings of economic recession, the deterioration of consumer confidence is relatively mild, and the possibility of an economic soft landing still exists.
At the Federal Open Market Committee (FOMC) meeting held on September 17th and 18th, the updated Summary of Economic Projection (SEP) showed that although the unemployment rate forecast for 2024-2026 has been raised compared to June, the actual GDP growth forecast for 2025 and 2026 has not changed, indicating that FOMC members still expect the economy to achieve a soft landing. The Federal Reserve (FRB) believes that there have been no large-scale layoffs observed during past economic downturns, and structural increases in labor supply such as immigration have also driven up unemployment rates. Therefore, the Federal Reserve advocates that the signals of this economic recession are "different". On the other hand, to maintain the strong performance of the labor market, the Federal Reserve has turned to considering necessary financial easing measures, including significant interest rate cuts. Whether the adjustment of the labor market can be prevented through interest rate cuts will determine the success or failure of the soft-landing scenario.
■Multiple economic recession signals light up, and the consumer confidence index also suggests that the economy is about to enter a recession
The September US Consumer Confidence Index released yesterday (98.7, down 6.9 points month-on-month) was the largest decline in three months, with detailed data showing a decrease in both the current situation index (124.3, down 10.3 points month-on-month) and the expectations index (81.7, down 4.6 points month-on-month). This index is based on a survey of 5000 households. The current situation index consists of two items (economic and employment status), while the expected index consists of three items (economic, employment, and income prospects for the next six months). The answer options include "good", "unchanged", and "poor". In September, the gap in the proportion of "good" and "poor" answers narrowed in five projects (the gap in the proportion of answers widened in projects where "poor" exceeded "good"). Especially in terms of the economic and employment situation, the proportion of "poor" answers has significantly increased, and the current situation index has dropped to the lowest level since 2016, except for the sharp decline caused by the 2020-21 pandemic lockdown.
The author pays special attention to the current situation index in the Consumer Confidence Index as an early warning indicator for the economy. According to historical data, when the current situation index drops sharply in the short term, the economy often falls into recession. If the highest point of the 3-month average in the past year is taken as the benchmark, a decrease of 20 points can be used as a warning standard for economic recession. The latest value for September (a decrease of 19.1 points) shows that the current situation index has been declining for seven consecutive months, but has not yet triggered a signal of economic recession. In the July US employment data released on August 2, the economic recession indicator of the Sahm Rule has exceeded the threshold of 0.5%. Since September 5, the short-term interest margin (the yield margin of the US two-year and 10-year treasury bonds) in the US treasury bond market has changed from negative to positive, and the reverse yield phenomenon has been eliminated. Despite multiple early warning indicators issuing warnings of economic recession, the deterioration of consumer confidence is relatively mild, and the possibility of an economic soft landing still exists.
At the Federal Open Market Committee (FOMC) meeting held on September 17th and 18th, the updated Summary of Economic Projection (SEP) showed that although the unemployment rate forecast for 2024-2026 has been raised compared to June, the actual GDP growth forecast for 2025 and 2026 has not changed, indicating that FOMC members still expect the economy to achieve a soft landing. The Federal Reserve (FRB) believes that there have been no large-scale layoffs observed during past economic downturns, and structural increases in labor supply such as immigration have also driven up unemployment rates. Therefore, the Federal Reserve advocates that the signals of this economic recession are "different". On the other hand, to maintain the strong performance of the labor market, the Federal Reserve has turned to considering necessary financial easing measures, including significant interest rate cuts. Whether the adjustment of the labor market can be prevented through interest rate cuts will determine the success or failure of the soft-landing scenario.