Surprisingly Strong U.S. Economic Data Keeps Recession Fears at Bay
Economists still expect to see a recession but are pushing back projections of the downturn’s start date.
A flurry of data showed surprising strength in several corners of the U.S. economy, painting a picture of resilience and further delaying any likelihood of recession.
Purchases of new homes climbed at the fastest annual rate in more than a year, durable goods orders topped estimates, and consumer confidence reached the highest level since the start of 2022, according to the Tuesday reports. Another release showed that housing prices in the United States rose for a third-straight month.
“The consensus view continues to stubbornly call for a recession starting in a few months, but the economic data are telling a far different story right now,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, said in a note. “Resilience remains the watchword.”
While the data doesn’t reject the possibility of a recession in the coming year, it does give reason to believe a downturn isn’t right around the corner, let alone a forgone conclusion. The latest reports on retail sales, inflation-adjusted consumer spending, and the job market also support that notion.
Treasuries declined after the reports, girding speculation that the Federal Reserve will resume raising interest rates after this month’s pause.
A rebound in housing demand, despite high mortgage rates, suggests that the economy is so far withstanding higher borrowing costs. While homeowners are reluctant to move and take on a greater mortgage, prospective buyers have adjusted to the shift and are increasingly seeking out new construction instead.
Purchases of new single-family homes increased 12.2 percent, to an annualized 763,000 pace last month, government data showed Tuesday. The figure marked the third-straight monthly advance and beat all but one estimate in a Bloomberg survey of economists.
While consumers in June reported less appetite to buy a home or make other major purchases like cars and appliances, confidence surged in the month, according to the Conference Board’s index. The advance was driven by greater optimism about the labor market and the economic expansion.
Even though the group’s measure of expectations—which reflects consumers’ six-month outlook—rose to the highest level this year, it still signaled “consumers anticipating a recession at some point over the next 6 to 12 months,” said Dana Peterson, the chief economist at the Conference Board.
What Bloomberg Economists Say…
“We still expect a recession to unfold in the second half of 2023, but the confidence reading suggests the downturn could begin later in that window than earlier.”
—Jonathan Church, economist
The robust confidence and homebuying data is rooted in what’s still a strong labor market. Unemployment is historically low and job openings are plentiful, though both metrics have been softening in recent months.
Tuesday’s figures are also positive signals for economic growth. Orders placed with U.S. factories for business equipment rose in May for a second month, indicating companies continue to make longer-term investments despite high borrowing costs and economic uncertainty.
Shipments of non-defense capital goods, which are a proxy for actual spending, jumped 3.4 percent, the biggest increase since the end of 2020. That bodes well for gross domestic product this quarter, said Jennifer Lee, senior economist at BMO Capital Markets. “Delayed (not a bad thing, until it is) U.S. recession chatter has gained more followers over the past few weeks,” Lee said in a note Tuesday. “The latest round of economic releases was resoundingly solid.”
—With assistance from Augusta Saraiva.
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