A Recession is Not Preordained
The article argues that a US recession is not inevitable, citing strong corporate and consumer financial health with $7 trillion in corporate cash and $2 trillion in excess household savings, a robust labor market with unemployment below 4%, record-high home prices and tappable equity, signs of peaking inflation, balanced sector conditions, and manageable credit conditions, despite Wall Street's consensus predicting a recession.
We try to construct these weekly pieces as narrative or mini-narrative essays. This week we are taking a different approach, simply listing the reasons why we think a US recession isn’t pre-ordained. Before we get to those reasons, we would point out that since 1980, the US economy has been in recession just 13% of the time, and that the yield on the US 10 Year Note has come in by about 40bps, a possible sign the market is increasingly confident the Fed will win the battle against inflation.
- Corporate America, the US consumer is in fantastic financial shape
- Companies hold $7 trillion in cash; excess household savings total $2 trillion
- The labor market is exceptionally strong – sub 4% unemployment rate
- Home prices are at an all-time high; record tappable equity
- Some inflation data points appear to have peaked/have rolled over
- No signs of meaningful sector or industry imbalance
- Credit conditions aren’t overly tight
- Recession call seems the consensus on Wall Street