Economists Predict Recession
In the past year, the stock market has been marked by volatility. All three indexes went from crashing mid-2023 on rate hike fears to setting new highs in 2024. As investors bask in the glow of recent stock market records, a dark cloud looms on the economic horizon. Analysts are sounding the alarm about a potential deep recession that could send shockwaves through the financial world.
Peter Berezin is chief global strategist for BCA Research. He predicts a recession will hit either this year or in early 2025. His reasoning? A dramatic slowdown in the labor market that’s expected to unfold in the coming months. This, in turn, could drag down consumer spending, a crucial driver of economic growth.
Berezin’s analysis hinges on the Phillips curve. That is an economic indicator that describes the inverse relationship between unemployment and inflation. He explained, “The reason the US avoided a recession in 2022 and 2023 was because the economy was operating along the steep side of the Phillips curve. When the labor supply curve is nearly vertical, weaker labor demand will mainly lead to lower wage growth and falling job openings. In other words, an immaculate disinflation.”1
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Some experts argue that we’re already in a recession, pointing to key indicators:
Rising unemployment claims – Initial claims are spiking, but so are continuous claims. People are losing their jobs and staying unemployed for much longer.
A shrinking manufacturing sector – The manufacturing sector has been in contraction for a long time. Recession was averted because a growing service sector was able to act as a counterweight. But that seems to be over.
A contracting services sector – Now, the service sector, which accounts for 70% of US GDP, is showing signs of shrinking. The ISM Services PMI dropped below 50. The ISM Services PMI is the Institute for Supply Management Services Purchasing Managers’ Index. It is a monthly survey that measures the health of the US service sector. It compiles responses from service industry managers into a single number. Readings above 50 indicating expansion. The current reading, below 50, signals recession. Additionally, new orders in the service sector have fallen sharply, pointing to further weakness ahead.
Too Late to Stop
Macroeconomist Henrik Zeberg criticized the Fed’s focus on inflation. He considers it a lagging indicator that doesn’t show the true state of the economy. He warns that the Federal Reserve’s response to the slowing economy is “dangerously late.” They have potentially set the stage for the largest economic crash since 1929. Zeberg predicts a temporary market rally (which we may be in right now) followed by a significant recession in Q4 2024. 3
Zeberg’s analysis rests on the Relative Strength Index (RSI). It is a momentum indicator that measures the speed and change of price movements. The RSI is currently hovering around 50, a level associated with weakening market momentum in previous pre-crash periods.
Implications
The stock market’s recent performance might be misleading. The S&P 500’s surge is largely attributed to a handful of stocks, while cyclical stocks underperform. This disconnect between market euphoria and economic reality echoes the lead-up to the crashes of 2000 and 2008.
Looking ahead, the recession’s impact on corporate earnings could be the tipping point. Analysts suggest that once tech giants like Meta, Google, Amazon, and Apple lower their earnings expectations, the current bubble may burst. It would be reminiscent of how Yahoo’s missed earnings in March 2000 punctured the dot-com bubble.
Conclusion
Zeberg foresees a potential “blow-off top” in the market- a sharp but unsustainable rally before a major crash. For some, this is seen as an opportunity to sell and get out of an overvalued market and move into safe haven assets. Physical precious metals, especially in a Gold IRA, can protect the value of a portfolio from recession and a plunging stock market. To learn more before it’s too late, contact American Hartford Gold at 800-462-0071 today.
Notes:
1. https://nypost.com/2024/07/02/business/us-headed-for-a-deep-recession-stocks-could-fall-30-analyst-warns/
2. https://jabberwocking.com/the-unemployment-rate-is-rising/
3. https://finbold.com/economist-says-fed-its-way-too-late-to-rescue-economy-warns-largest-crash-next/
