US heads into recession? Read & decide.
Hedge funds managers and Wall Street veterans have been warning that US will slip into recession since December 2022.
This usually happens after the Fed raises the Fed Funds Rate.
With October month coming to an end by Tue, 31 Oct 2023 — is US market really heading into recession or is in recession already?
To second guess with tact, deferring to official reports released:
Weekly.
Monthly.
Quarterly.
These “looking back over your shoulder” reports offer signs, directions and implications of where US economy could possibly be heading.
The following reports were considered:
Gross Domestic Product.
Personal Consumption Expenditure.
S&P 500 Global Flash US PMI.
US Weekly Jobless Claims.
US Non-Farm Payroll.
(1) Gross Domestic Product (GDP)
On Thu, 26 Oct 2023, US Q3 2023 gross domestic product (GDP) first estimate was released. (see below)
Gross domestic product (a measure of all goods and services produced in the US) came in at a faster than expected 4.9% annualized pace, ahead of the 4.7% forecast.
The sharp increase was mainly due to:
Contributions from consumer spending.
Increased inventories.
Exports.
Residential investment.
Government spending.
The report could give the Fed reasons to keep policy tight.
However, traders were still sticking to an unlikely chance of an interest rate hike when the FOMC convenes this week.
No one could have anticipated such healthy growth in spite of:
Higher interest rates.
Ongoing inflation pressures.
Domestic & global headwinds.
2 international wars, happening concurrently.
(2) Personal Consumption Expenditure (PCE).
On Fri, 27 Oct 2023, US personal consumption expenditure (PCE) for September 2023 was released. (see below)
***Core PCE Price Index YoY is a measure of inflation that excludes food and energy prices, that are considered volatile.
Report indicates that US Core PCE Price Index YoY for September 2023 came in at 3.7%.
This was -0.1% lower than August 2023 core PCE of 3.8% (revised).
Incidentally, it is also the “lowest” core PCE report YoY increase since a year ago, October 2022. (see above).
Core PCE Price Index YoY is a measure of inflation that excludes food and energy prices, which are considered volatile.
The Federal Reserve has been closely monitoring inflation levels.
They have indicated that it would like to see inflation average at around 2% over time.
With the latest report out, inflation is still above the Federal Reserve’s target rate.
However, the Federal Reserve has also indicated that it will be patient in deciding when to raise interest rates.
Comparison of Core PCE Price Index YoY (past few months): See below
*note: refer to columns (Actual & Previous)
Looking at above table:
Core PCE had in fact been bouncing between 4.6% & 4.7% for earlier part of 2023.
It only “really” started dipping from June 2023 onwards, based on May 2023 data.
Despite Core PCE has been downwards trending, it is still above the Fed’s 2% target rate.
While the probability of a Fed rate hike remaining status quo on 01 Nov 2023 is at 99.9%, probability of a hike in December 2023 remains a possibility.
It depends on how other official reports play out in November, 2023.
(3) S&P 500 Global Flash US Purchasing Manager Index (PMI).
If there is any other report that provides a “latest” glimpse of the US economy, it would be the S&P 500 Global Flash US PMI. (see below).
The S&P Global Flash US PMI — is a weighted average of US manufacturing & service sector PMIs, produced by S&P Global.
For October 2023, business activity accelerated, reversing a downward trend many economists had expected to continue.
S&P Global US composite PMI flash for October, came in at 51.
This is :
Up from 50.2 in September.
+1 point, better than the 50, expected by economists.
More importantly, hopes of a soft landing for the US economy is encouraged by the October data.
The S&P Global PMI survey has been among the most downbeat economic indicators in recent months.
This latest upturn in US output growth signaled at the start of Q4 2023 is good news indeed.
(4) US Weekly Jobless Claims (Week ending 21 October 2023).
On Thu, 26 Oct 2023, US Dept of Labor released its regular weekly jobless claims report. (see above)
Initial jobless claims rose by +10,000 to 210,000.
It is +0.96% higher than market expectation of 208,000.
The 4-week moving average was 207,500, a +1,250 from the previous week’s revised average.
The slight increase in initial jobless claims is a sign that the labor market may be slowing down.
The number of jobless claims remains historically low. This implies US labour market remains relatively “tight” & “resilient”.
Referring to above table, US jobless claims have been fluctuating around the same range for the past few weeks.
Given the “tight” range-bound weekly jobless claims figures, there is a possibility that the Fed may wait for more data before making any decisions.
(5) US September 2023 Non-Farm Payroll (NFP).
On Fri, 6 Oct 2023, US Bureau of Labor Statistics released the Nonfarm Payrolls (NFP) report for September 2023.
September NFP increased by +336,000 beating market forecasts of 170,000.
Using forecast as the baseline, NFP has +97% gain; that is substantial.
It is the strongest job gain in 8 months, showing that US economy is still adding jobs at a healthy pace.
Sectors with job gains:
Leisure and hospitality.
Government,
Health care,
Professional, Scientific, and Technical services.
Social assistance.
Sectors with little employment change:
Mining,
Quarrying.
Oil and Gas extraction.
Construction.
Manufacturing.
Wholesale trade.
Retail trade.
Financial activities.
Other services.
Despite the Fed’s tightening campaign, the report clearly indicates US labour market is gradually easing but remains resilient, all at the same time.
September 2023 unemployment rate was unchanged at 3.8%, that is considered low by historical standards.
**Note: Unemployment rate does not capture all aspects of the labour market. For example, underemployment or discouraged workers.
Regular news update of labour market remains key, to determine whether the trend will persist.
My Viewpoint:
I have always been a little “numb” to of numbers and statistics.
This is because when it comes to an official report, there might be more than meets the eye.
Most of the covered reports are based on past data, revealing a lot about the past and very little about the future.
I do not think that the US is in recession (at the moment), based on overall conclusions derived from the official reports.
In fact, the data set should strengthen the US 3 composite indexes of [a] $DJIA(.DJI)$ , [b] $S&P 500(.SPX)$ and [c] $NASDAQ(.IXIC)$.
It is hoped that the Hamas-Israel war could come to a peaceful halt before its fallout affects global economies and not just US alone.
Do you think the US economy will slip into recession before 2023 is over?
Do you think external factors could (in one strong swipe) affects US economy causing it to slip into recession?
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Hehehe bisa jadi udah ada djr