Fears of US recession recede

Fears of a US recession appear to have eased, with many Wall Street analysts saying the risk of one happening next year is now modest.

As recently as August, some models put the chances of a US recession in the next year at 50%. Now, as American and Chinese officials mull a “phase one” trade deal in public, and the US economy continues to provide promising numbers on employment and consumer spending, analysts are more optimistic.

Goldman Sachs now puts the risk level of an American recession in the next year at 24%. “Barclays says less than 10 percent. Morgan Stanley says ‘around 20’ percent,” reports The Washington Post.

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US Federal Reserve Chairman Jerome Powell indicated as much last week, when, despite lowering interest rates for the third time in a row, he implied that the economy was now in a position healthy enough not to require further monetary easing.

“The last three interest rate cuts that we made are to be supportive so we don’t find ourselves in a slowdown that translates into something else,” said Mary Daly, the president of the San Francisco Federal Reserve, at an event at New York University. “It’s about getting the economy in a good place... so that we can continue to push against the considerable headwinds against the U.S. economy.”

She told CNN: “Expansions don’t die of old age. They’re not like people. The biggest risk is: Will the mood get ahead of the data?”

Following an event at the Council of Foreign Relations in New York, Chicago Federal Reserve president Charles Evans said on Wednesday: “I definitely think the U.S. economy is in a good place right now. I think the U.S. consumer has been very strong... I think we’re in a good place, I think policy is in a good place. I think we’ve made a nice adjustment.”

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One particularly encouraging sign has been the continued resilience of US consumer spending - which comprises more than two-thirds of the entire US economy - even in the face of business investment that has now contracted for two straight quarters.

Likewise the labour market - the US added 128,000 jobs in October. “For now, we can take solace that there are sufficient job and wage gains to support the economy and keep it miles away from any recession,” said Joseph Brusuelas, the chief economist at the tax and consulting firm RSM.

Goldman Sachs Group Inc CEO David Solomon, speaking to Bloomberg Television in Berlin on Tuesday, joined in the chorus of positivity. “I’ve said that I still think the chance of a U.S. recession between now and the election is small - in the distributions of outcomes, it’s a smaller outcome - I said roughly 25%,” he said.

Nevertheless, the low rates of business outlays could have a detrimental long term effect, as that would mean a “shortfall in the pace at which new innovations make their way into the production process,” writes Milton Ezrati in Forbes. “In the long term, such a slowdown threatens to impair labor productivity throughout the economy and accordingly the growth of real wages. It also threatens to detract from the profitability and competitiveness of American industry and business and so the economy’s ability to grow at acceptable levels.”