Analysts Warn Recession Continues to Loom, Contrary to Optimistic Claims

By Doug Young – 06 September 2023

Introduction

Despite recent claims that the recession will end, some economists and analysts have expressed skepticism about the state of the US economy. While some experts say the economy’s resilience and continued growth suggest a gentle landing, others warn of potential pitfalls ahead. This article delves into the arguments of these skeptical analysts, exploring their concerns and shedding light on the factors that may still contribute to a future recession.

Delayed, Not Derailed

Economist David Rosenberg, a prominent voice among those skeptical of a recession-free future, points out that although a recession has yet to materialize, it has merely been delayed, not derailed. Rosenberg argues that there are signs of trouble brewing in the consumer-credit markets, particularly in auto loans and credit cards, indicating a potential wave of defaults on the horizon. He also questions the disingenuousness of banks that have reversed their recession forecasts while simultaneously raising their loan-loss provisions.

Time Lag and Economic Slowdown

Nancy Lazar, Chief Global Economist at Piper Sandler, echoes Rosenberg’s sentiments, suggesting that the delay between rate increases and their impact on the economy may be prolonging the recession’s arrival. Lazar points to indicators such as the drop in the purchasing managers’ index and the slowing of employment gains as evidence that the tightening cycle of the Federal Reserve is starting to affect the economy. She and her team predict a recession onset in the fourth quarter of this year.

Inflation and Job Market Concerns

Veronica Clark, an economist at Citi, adds another perspective to the discussion. She argues that sustainable inflation levels cannot be achieved without further “loosening” in the labor market, which implies higher unemployment rates. Clark suggests that continued tightening of monetary policy may be necessary to corral inflation, potentially leading to a breaking point in the job market.

The Rollout of Recession

Jeff Klingelhofer, Managing Director at Thornburg Investment Management, believes that a recession is still on the horizon, likely occurring in either late 2023 or early 2024. Klingelhofer identifies rising delinquencies in consumer debt as a variable of concern. He emphasizes that while signs of recession are present, their effects may be playing out over a longer timeframe than initially expected.

Lagging Impacts and Consumer Exhaustion

Some analysts think that the economy has not yet totally felt the impact of interest rate increases. They argue that time lag between interest rate changes and their impact on the economy could be longer than previously thought. However, others think that because of increased debt and savings, private spending is sustaining the economy. Recent data shows that excess savings accumulated during the pandemic are expected to dry up by the third quarter of this year, potentially leading to greater economic hardship.

The Uncertain Economic Landscape

While it is impossible to predict with certainty whether a recession will occur, the divergent views among credible economists and analysts highlight the uncertainty surrounding the economic landscape. Retirement savers are advised to prepare for various economic scenarios, given the potential challenges that lie ahead.

Conclusion

Amid claims of recession cancellation, skeptical analysts continue to warn of potential economic downturns. Concerns about delayed impacts of rate hikes, signs of distress in consumer credit, and the depletion of excess savings contribute to their skepticism. The ongoing uncertainty surrounding the future of the economy underscores the importance of being prepared for any economic environment. As experts debate the likelihood of a recession, staying informed and adaptive remains crucial in navigating the ever-changing economic landscape.

Note: The information provided for this article has been combined with independent research to present a comprehensive and balanced view of the topic.