US Recession Monitor – Economy finding its footing

The economy underwhelmed in the first half of the year while it transitioned to a more sustainable pace of growth, which often includes bumps and jitters. Our business cycle index weakened but is not consistent with an economy in recession, and the incoming data for June points toward a noticeable improvement.

What you will learn:

• There are parts of the economy struggling, including manufacturing and housing. Worries about the consumer are overdone, but there are some vulnerabilities. A deceleration in inflation will support gains in real disposable income and, by extension, consumption while reducing the odds of a significant rise in delinquency rates.
• The recent rise in the unemployment rate is not sending warning signs, with more than half of the increase since the start of the year attributed to a growing labor supply while job losers have declined. Labor demand is slowing, but companies are not laying off workers in large numbers, which reduces the odds of a negative feedback loop of rising unemployment leading to income loss, reduction in spending, and more layoffs.
• Near-term recession risks did not change markedly in June from their lows last month. Weakness remains concentrated in consumer sentiment and building permits, and neither should be a cause for concern of an impending recession.