No Fear of Recession in the U.S., IMF Forecasts Growth

Concerns about the U.S. entering a recession are gradually dissipating, and expectations are strengthening that it will be successfully avoided, writes the chief economist of HUP in weekly analyses.

Where does such concern even come from? During the summer, financial markets feared a recession due to weaker signals from the labor market, specifically employment growth that fell short of expectations. Additionally, a significant drop in the savings rate from 5.5 percent in January to 4.8 percent in August indicated a possible slowdown in what had been a strong growth of personal consumption at 2.8 percent in the second quarter, which served as the ‘locomotive’ of the U.S. economy. The rhetoric about recession was further fueled by the local central bank, the Federal Reserve (FED), which lowered interest rates by 50 basis points to 5.00 percent, a move that the market interpreted as a delayed reaction since the FED had kept interest rates at 5.50 percent for nearly a year.

However, the latest labor market report dispels fears of a recession, given the strong and surprising jump in employment by 254,000 in September, significantly above expectations of around 147,000 new jobs. On the other hand, the unemployment rate has been declining for the third consecutive month, falling from 4.3 percent in July to 4.1 percent in September. The strong recovery in the labor market has also spilled over into consumer spending, further bolstering the increase in personal consumption in the U.S. The household savings rate has not fallen as sharply as expected, remaining at nearly the same levels as in 2023, according to HUP’s weekly analyses.

Profits of U.S. companies have risen by as much as 11 percent compared to last year, demonstrating that the economy is healthy and continues to grow. Since profits are one of the most critical factors in decisions regarding further investments in equipment, buildings, and intellectual property, this growth indicates that investments in the U.S. will also stimulate economic growth.

Therefore, it is unlikely that the U.S. will step into recessionary territory in the next few quarters, given that growth in the labor market, personal consumption, and investments continues to show positive trends.

Finally, the FED is likely to continue lowering interest rates, and the market expects a rate cut of 25 basis points at the next meeting in November. The International Monetary Fund (IMF) expects real GDP growth in the U.S. in 2024 to be around 2.4 percent, conclude HUP.