US Recession Monitor – Economy remains on solid footing

Our business cycle indicator confirms the economy has improved after getting off to a slow start in Q1. We expect the index to show an increase this quarter as consumer spending is on solid footing, the labor market remains tight, and business investment is decent.

What you will learn:

• One segment of the economy that is struggling is housing as affordability has eroded. We are keeping a close eye on low- and middle-income households as delinquency rates rise, excess savings become exhausted, and household purchasing power is squeezed by inflation.
• April’s consumer price index offered encouraging details on inflation, leading to lower yields, higher equities, and looser financial conditions as markets bet on the Federal Reserve easing monetary policy a couple of times this year, which was not the case before the new data on inflation. However, rising commodity prices and tighter supply-chain conditions could put upward pressure on goods prices, though our forecast assumes the boost should be modest.
• Near-term recession risks remain exceedingly low, according to our newly revamped suite of recession models. Sentiment and economic data tend to send the strongest signal at turning points, and both remained healthy during the month and corroborate our low level of subjective odds of a recession over the next 12 months, which we place at 25%.