Recession Outlook: Economist Predicts Recession but Expects Delay

Summary:

• The Federal Reserve's interest rate hikes have gradually slowed down the economy, impacting interest rate-sensitive sectors first.
• Despite upbeat consumer confidence, actual consumer spending is not matching the optimism, leading to a prolonged slowdown period.
• The presence of substantial savings from the pandemic is likely delaying the expected increase in unemployment rates and the full impact of the recession.
• Excess savings from stimulus measures have supported consumer bank accounts, but uncertainty remains about the duration of this savings runway.
• Economists believe a recession is inevitable, but the timing of its arrival is uncertain, leaving financial markets in a state of suspense.

The resilience of the U.S. consumer has been one of the stories of the year, keeping an imminent recession at bay. However, recent weeks have brought a more nuanced backdrop with tightening credit and weakening consumer demand despite upbeat confidence readings. Economist Torsten Slak from Apollo Global Management provides insight into the situation.

The gradual slowdown of the economy started when the Federal Reserve raised interest rates last year. Interest rate-sensitive sectors like housing, autos, and furniture purchases were the first to experience a deceleration. Now, the slowdown is spreading to other areas, including consumer services, with indicators showing a decline in restaurant activity. While optimism is on the rise, consumer spending is not matching the sentiment, leading to a prolonged deceleration period for the economy. The persistence of savings after the pandemic is likely delaying the anticipated impact on unemployment rates.

Despite wage growth and a strong job market, the Federal Reserve's efforts to slow down the economy have yet to materialize fully. Excess savings from stimulus measures have supported consumer bank accounts, but uncertainty remains about the duration of this savings runway. Economists suggest that a recession is still inevitable, but its arrival might take longer than expected, leaving financial markets in suspense.