As the US economy continues to show signs of strength, there are growing concerns that a recession may be looming. Despite a summer of low inflation, a thriving job market, and strong consumer spending, experts warn that the economy is not as stable as it appears.
One of the main reasons for concern is the natural tendency for economists to overlook the warning signs of a recession. History has shown that soft landing calls, like those being made now, often precede a hard landing. The human brain is wired to think linearly, assuming that the future will be an extension of the past. However, recessions are non-linear events that are difficult to predict.
Another factor contributing to the possibility of a recession is the impact of the Federal Reserve’s interest rate hikes. While the stock market and housing industry have shown positive signs, the true effects of these rate hikes won’t be felt for another 18 to 24 months. This could lead to a downturn in these sectors at the end of this year or early 2024.
Additionally, various indicators are pointing towards a recession in the near future. Measures of income, employment, consumer spending, and factory output are already showing signs of decline, suggesting that a recession may have already begun in the closing months of 2023.
Furthermore, there are several shocks on the horizon that could further damage the economy. A major auto strike, the resumption of student loan repayments, a surge in oil prices, a yield curve selloff, and global economic issues all present significant risks. These shocks, combined with the already fragile state of the economy, could easily push the US into a downturn.
Lastly, household spending, which has been a strong driver of economic growth, may be on the decline. Despite a summer filled with hit entertainment events and lavish spending, the extra savings that Americans accumulated during the pandemic are running out. As a result, credit card delinquency rates have surged, particularly among younger Americans, and parts of the auto loan market are showing signs of trouble.
Overall, while the US economy currently appears to be in a strong position, there are multiple factors that suggest a recession may be imminent. Economists and policymakers must remain vigilant and take the necessary precautions to mitigate the potential impact of a downturn.