U.S. economy defies the doomsayers (and historic markers) to avoid recession
The U.S. Federal Reserve started 2023 on a pessimistic note, saying a recession was “plausible,” and in the months ahead, headline writers were quick to trumpet a looming recession.
But a recession never arrived and, increasingly, it looks like the United States is out of the woods and about to enter another significant growth phase.
The US economy grew much faster than expected in the June quarter: at an annualised rate of 2.8%, compared to market expectations of 2% annual growth, according to the first set of data for the quarter from the US Commerce Department, released last week. The better news was that price indices fell sharply from the first quarter.
The fears of a recession appear to be in the rearview mirror, as two significant historical indicators have recently defied results that previously were lead indicators of a recession.
Firstly, the inverted yield curve (the negative difference between the two-year and 10-year US government bond rates), has experienced two years of a shrinking difference and no recession has arrived.
Secondly, a fall in temp jobs has preceded a decline in the wider labour market by six to 12 months for the most recent three recessions (1991, 2001, and 2008). However, no 2024 recession is in sight despite a 16% (515,000) decline in temp jobs since temporary employment peaked in March 2022. The unemployment rate (4.1%) remains near historic lows, and real wages continue to rise.
Hiring outlooks and expectations for workforce increases remain high, with 81% of hiring managers expressing a positive outlook for their company’s hiring opportunities for the remainder of 2024, according to an Express Employment Professionals-Harris Poll survey in late May of 1,003 hiring managers in the United States released last week.
Sixty percent of hiring managers surveyed reported their companies plan to increase headcount in the second half of 2024, with 15% planning significant increases.
The survey noted that new business opportunities are driving company efforts to increase employee numbers, with 50% of hiring managers attributing these plans to the need to manage increased volumes of work and 44% to fill newly created positions.
The layoff rate dropped to 0.9% in June, tied for the all-time low in the series clearly indicating employers, mindful of the immediate post-pandemic period of labour shortages, are being much more cautious with their headcount reductions.
Job vacancies remain stable at 8.2 million for June although the hires rate (gross hiring as a percentage of total employment) dropped to its lowest level (3.4%) since March 2020 and into a range last seen in 2014, when the labor market was weak.
US business activity accelerated in early July at the fastest pace in more than two years, according to the S&P Global flash July composite output index, which ticked up 0.2 points to 55, the highest since April 2022.
“The flash PMI data signal a ‘Goldilocks’ scenario at the start of the third quarter, with the economy growing at a robust pace while inflation moderates,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.
Of course, things could change rapidly, especially with a looming presidential election; however, nothing in the current data suggests an economic downtown in the United States is just around the corner, quite the contrary, a new expansionary period may just be beginning.