The economy looks good, the market disagrees
The last quarter of the decade still has about 10 weeks. And by the beginning of the 2020s, everyone is wondering when the next recession will hit the US economy.
Yahoo Finance's latest All Markets Summit, held Thursday in New York, featured executives from various industries discussing the topic of the next recession.
The President of the Minneapolis Fed, Neel Kashkari, most concisely summed up the general consensus on where we are now. "My baseline scenario is not a recession," Kashkari told Brian Cheung of Yahoo Finance.
"I still think the US economy will grow, but the risks have gone down significantly," Kashkari added. The yield curve, the slowdown in manufacturing, and the decline in business investment in America suggest that Kashkari is picking up on some trends in the US economy. Given the persistence of employment growth and rising wages, an imminent recession is hard to imagine.
"We are all concerned about the indicators we see in the manufacturing sector," said Barbara Humpton, CEO of Siemens USA. "This is a crucial indicator for many, many of our clients, and we understand the current geopolitical factors."
Joe Ucuzoglu, CEO of Deloitte US, added during the same panel: "The data is clear Obvious There is some slowdown in manufacturing in several major economies around the world."
Ucuzoglu noted, however that "manufacturing accounts for about 14% of the US economy, and there are big strengths in all countries, the economy as a whole, including in services." And as we have often stated, the US economy is ultimately determined by what in the service sector, which accounts for 85% of GDP.
These "one-sided" views also apply to the economy largely in line with what we see in economic data. On the one hand, companies are worried about the economy, but on the other hand, they are still hiring staff.
This divergence is also reflected in Bespoke Investment Group's recent sentiment report, which provides investors with a great visualization of the divide in which we find financial markets and economic indicators.
Overall, economic sentiment is near its highest level since the tech bubble. And although this reading has been associated with market volatility over the past year, the general reading has remained optimistic for the economy.
However, financial markets have had less and less positive views and the current gap between economic and market sentiment is eerily similar to what was seen before the tech bubble.
"Will this current period be a repeat of the late 1990s?" Bespoke asks in a report released on Thursday.
"This is a small sample, so this is not safe at the moment, but investors should be extra cautious when signs of a significant deterioration in consumer sentiment become apparent." "Unfortunately sentiment towards the economy can only be become so strong that it flattenes out (which has been the case in recent months) or even worsens. "
As the US economy is currently creating more jobs than likely to support labor market growth It's hard to get one Creating a baseline scenario in which we soon enter a recession, as Kashkari outlines.
But we can not ignore the fact that the markets say something negative about the prospects. This may indicate a significant increase in downside risks to the economy.
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