The United States: Sudden Concerns about Economic Slowing
2024-07-10
■ The US economic data is generally lower than expected, with the economic surprise index dropping to its lowest level in about two years.
■ Despite growing concerns about a slowdown in personal consumption, the potential positive impact of the sharp reduction in risk, supported by asset effects, offers a promising outlook.
In the United States, economic data is generally lower than market expectations, and the Economic Surprise Index (negative 46.7 as of July 8) has dropped to its level from June to August 2022, when concerns about an economic recession were triggered by high inflation and significant interest rate hikes. The Economic Surprise Index is calculated based on the weighted average of the differences between economic data released in the past 30 days and market expectations. A negative value means it is lower than market expectations. Although a significant negative value does not necessarily indicate an economic recession, it suggests that economic activity adjusts at a speed exceeding expert expectations. The Atlanta Federal Reserve's GDP Now index shows that the annual real GDP growth rate in the United States is expected to be 1.5% in the second quarter of 2024 (as of July 3), a significant decrease from the 3% forecast in late June. In addition, the unemployment rate rose to 4.1% in June, leading to a rise in the Sahm’s rule recession index to 0.43. Suppose the unemployment rates in May and June remain unchanged, and the unemployment rate rises to 4.2% in July. In that case, it will reach the economic recession threshold of 0.50, which may increase suspicion of an economic soft landing.
The indicators that failed to meet market expectations include a decline in major economic activity indicators such as equipment investment, housing-related, consumption-related, and corporate and consumer confidence. Especially the slowdown in personal consumption expenditure growth, which supported high growth in the second half of 2023, as well as the decline in leading indicators such as the expected portion of the consumer confidence index and the new order index of ISM's nonmanufacturing prosperity index, has intensified concerns about a slowdown in personal consumption. According to the June Survey of Consumer Expectations (SCE) released by the New York Fed yesterday, the household spending outlook shows that the median (a year-on-year increase of 5.1%) is expected to maintain stable growth but limited to 25% of households with lower incomes (a year-on-year increase of 2.1%), the growth is only about 2%. According to a survey by the San Francisco Federal Reserve, due to factors such as cash subsidies caused by the pandemic, the accumulated excess savings have been depleted in March 2024, and it is expected that the consumption expansion of low-income groups will be challenging to achieve. However, the asset effect (promoting consumption due to the increased value of held assets) contributes to consumption stability. With the continuous rise in asset prices such as stocks and real estate, the consumption of middle and high-income groups is supported. Therefore, after excess savings are consumed, household consumption may be more likely to slow down or slow down rather than sharply decline.
■ Despite growing concerns about a slowdown in personal consumption, the potential positive impact of the sharp reduction in risk, supported by asset effects, offers a promising outlook.
In the United States, economic data is generally lower than market expectations, and the Economic Surprise Index (negative 46.7 as of July 8) has dropped to its level from June to August 2022, when concerns about an economic recession were triggered by high inflation and significant interest rate hikes. The Economic Surprise Index is calculated based on the weighted average of the differences between economic data released in the past 30 days and market expectations. A negative value means it is lower than market expectations. Although a significant negative value does not necessarily indicate an economic recession, it suggests that economic activity adjusts at a speed exceeding expert expectations. The Atlanta Federal Reserve's GDP Now index shows that the annual real GDP growth rate in the United States is expected to be 1.5% in the second quarter of 2024 (as of July 3), a significant decrease from the 3% forecast in late June. In addition, the unemployment rate rose to 4.1% in June, leading to a rise in the Sahm’s rule recession index to 0.43. Suppose the unemployment rates in May and June remain unchanged, and the unemployment rate rises to 4.2% in July. In that case, it will reach the economic recession threshold of 0.50, which may increase suspicion of an economic soft landing.
The indicators that failed to meet market expectations include a decline in major economic activity indicators such as equipment investment, housing-related, consumption-related, and corporate and consumer confidence. Especially the slowdown in personal consumption expenditure growth, which supported high growth in the second half of 2023, as well as the decline in leading indicators such as the expected portion of the consumer confidence index and the new order index of ISM's nonmanufacturing prosperity index, has intensified concerns about a slowdown in personal consumption. According to the June Survey of Consumer Expectations (SCE) released by the New York Fed yesterday, the household spending outlook shows that the median (a year-on-year increase of 5.1%) is expected to maintain stable growth but limited to 25% of households with lower incomes (a year-on-year increase of 2.1%), the growth is only about 2%. According to a survey by the San Francisco Federal Reserve, due to factors such as cash subsidies caused by the pandemic, the accumulated excess savings have been depleted in March 2024, and it is expected that the consumption expansion of low-income groups will be challenging to achieve. However, the asset effect (promoting consumption due to the increased value of held assets) contributes to consumption stability. With the continuous rise in asset prices such as stocks and real estate, the consumption of middle and high-income groups is supported. Therefore, after excess savings are consumed, household consumption may be more likely to slow down or slow down rather than sharply decline.