Global Courant
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According to market veteran Ed Yardeni, the US economy has shifted from a “rolling recession” to a “rolling recovery”.
Since March last year, the Federal Reserve has raised Federal Funds rates by five percentage points and is likely to raise them by another 50 basis points by the end of this year.
Despite this monetary tightening, the US economy has not entered a recession. Instead, it has experienced what the head of Yardeni Research calls a “rolling recession” – different industries have been hit at different times since the beginning of last year.
This was already noticeable in the housing sector, as it is “always the industry hardest hit by rising interest rates,” Yardeni said. Goods and manufacturing are other sectors already feeling the pain, he added.
“Consumers bought a huge amount of goods after the pandemic lockdowns in 2020 and 2021. As retailers and wholesalers rushed to order more… “Squawk Box Asia” Tuesday.
However, Yardeni suggested that these hard-hit sectors were now seeing the first signs of recovery.
For example, large parts of the residential real estate sector have been in recession for the past eight quarters. But according to Yardeni, a surge in sales of new homes and single-family homes, up 12% and 19% respectively in May, marked the beginning of the recovery.
“There is a lot of pent-up demand for housing and a significant shortage of inventory. That may be enough to end the housing recession, even if mortgage rates remain high,” Yardeni said in a note to clients on July 3.
Unique factor influencing the US economy
The bullish investor also dismissed concerns about a recession caused by a downturn in commercial real estate.
The industry is undergoing a painful adjustment to higher borrowing costs and lower utilization rates as the shift to remote working takes place. That means rising loan defaults as $1 trillion in debt will be refinanced this year as valuations fall.
“Clearly there will be a recession in commercial real estate in the next two years. But I don’t think that sector is big enough to bring the economy down,” he said.
In addition, a unique factor influencing the U.S. economy is large-scale fiscal stimulus, such as the Inflation Reduction Act, implemented before an actual recession, Yardeni said.
The economist thinks these massive spending on infrastructure and efforts to bring manufacturing back to the US will offset other weaknesses and ultimately boost the economy.
When asked about the strength of this recovery, Yardeni confirmed that he had doubled his second-quarter growth forecast.
“We are raising our real GDP forecast for the second quarter from 1.0% to 2.0%, followed by 2.0% in the third and fourth quarters. We now see a 75% chance of a soft landing (was 70%) — subject to change depending on what the Fed does that, which depends on what inflation does,” Yardeni told clients in a note.
Yardeni previously predicted a soft landing for the economy and a boost for stock markets in 2023.
