Stubborn below-trend growth spurts US recession fears: Macquarie By Investing.com

A persistent period of below-trend growth in the US economy is raising concerns about a potential recession, according to a note from Macquarie on Tuesday.

While there has been a recent shift in sentiment from recession fears to optimism due to better-than-expected economic data, the investment firm cautions that this optimism may be premature.

Macquarie analysts suggest the US economy is facing “a stubborn crisis of below-trend growth induced by tight monetary policy, credit constraints and the drain on excess savings from the pandemic period”.

They say that while the economy appears resilient for now, it remains vulnerable to a recession if a financial shock occurs.

It says mixed signals from the economy are evident in recent market reactions.

Macquarie explains that weak economic data in July and early August initially sparked fears of an impending recession, which sent US stocks and Treasury yields lower.

However, better data on August 5 revived confidence, with the US economy once again looking solid and resilient.

Despite this, Macquarie believes a “middle view” makes more sense. This is where the US would continue to experience below-trend growth without tipping into an outright recession unless a financial shock occurs.

They note that this pattern of slow growth is typical after a period of sustained monetary tightening.

The note points out that the services sector, which saw some recovery in July, remains fragile. The ISM Services Index, a key economic indicator, shows a loss of momentum, reminiscent of patterns seen before the 2001 and 2007 recessions.

Macquarie concludes that the economy’s path forward will depend heavily on the actions of the Federal Reserve and the potential for external shocks, which could either stabilize growth or tip the economy into a recession.