Between jobs reports, CPI, purchase sentiment in the housing market, bank sector volatility, and Fed rate hikes, there is swirling uncertainty as to whether the U.S. is headed toward a recession or already in one. Below are some of the economic indicators our team monitors closely for our clients so they can stay focused on their financial plans.
Treasury Yields & Leading Economic Index Forecast Higher Probability of Recession
Treasury spreads, the difference between short-term and long-term government bond yields, are a popular data point for forecasting economic activity. Based on treasury spreads as of April 2023, there is a 68% likelihood the U.S. will experience a recession by April next year. (Source: Horsesmouth, 6/1/23)
On June 22, the highly respected Conference Board stated that its “US Leading Economic Index" (LEI) has declined in each of the last fourteen months and continues to point to weaker economic activity ahead” and the Board forecasted that “the US economy will contract over the Q3 2023 to Q1 2024 period. The recession likely will be due to continued tightness in monetary policy and lower government spending.”
Nevertheless, the U.S. economy expanded at an annualized pace of 2.6% in Q4 before slowing to 1.3% in Q1 2023, according to the U.S. Bureau of Economic Statistics. It also added 1.6 million net new jobs, according to U.S. Bureau of Labor Statistics data, including 339,000 new jobs in May alone. While these numbers don’t seem recessionary, the unemployment rate did creep up slightly in May, albeit is still below 4%.
Fed’s Take on Future Rate Hikes
At its June 14 meeting, the Federal Reserve opted not to hike rates (CNBC, June 2023) following a two-day deliberation as to whether the previous eighteen months of hawkish rate hikes struck the right balance. There is growing sentiment that the Fed will raise interest rates twice between now and the end of the year, and Chairman Jerome Powell remains cautiously optimistic that the Fed’s actions this year are leaning toward a more favorable economic outlook.
Looking Ahead While Staying Focused
Although the year is far from over, it serves as a reminder that even with an army of brilliant economists employed by the Fed and other agencies looking at economic data, it’s sometimes difficult with conflicting data points to understand where we are in the economic cycle and where we are headed.
What really matters is that you have a comprehensive financial plan that is built to handle economic uncertainty and you stick to it. Our experienced team at American Portfolios Denver is here to help you get the answers and confidence you need to weather any economic cycle.
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