Surprisingly strong US economic data keeps recession fears at bay

(Bloomberg) – A flurry of data showed surprising strength in several areas of the US economy, painting a picture of resilience and further delaying the likelihood of a recession.

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According to Tuesday’s reports, new home purchases rose to the highest annual rate in more than a year, durable goods orders beat estimates and consumer confidence hit the highest level since early 2022. Another release showed US house prices edged higher increased for the third month in a row.

“The consensus view remains adamant that a recession will hit in a few months, but the economic data is telling a different story right now,” said Stephen Stanley, chief US economist at Santander US Capital Markets, in a note. “Resilience remains the motto.”

While the data doesn’t rule out the possibility of a recession next year, it does suggest that a downturn is not imminent, let alone a foregone conclusion. The latest reports on retail sales, inflation-adjusted consumer spending and the labor market also support this assumption.

Treasury bonds fell after the reports, fueling speculation that the Federal Reserve will hike rates again after the pause this month. Chair Jerome Powell could amplify this bias on Wednesday when he and other central bankers meet for a forum in Europe.

Read more: Morgan Stanley expects Fed rate hike in July after Powell’s speech

living space boost

A rebound in housing demand, despite high mortgage rates, suggests the economy has so far been able to absorb higher borrowing costs. While homeowners are reluctant to move and take out a higher mortgage, potential buyers have braced themselves for the change and are increasingly looking to new homes instead.

New single-family home purchases rose 12.2% last month to an annualized rate of 763,000, government data showed on Tuesday. The figure marked the third consecutive month’s increase, beating all but one estimate by a Bloomberg poll of economists.

Read more: Homebuilding likely to boost US economy after two years of contraction

While consumers reported less willingness to buy a home and other major purchases such as cars and appliances in June, confidence rose sharply that month, according to the Conference Board Index. The increase was due to greater optimism about the job market and economic expansion.

Although the group’s measure of expectations — which reflects consumers’ six-month outlook — rose to its highest this year, it still signaled that “consumers expect a recession at some point in the next six to 12 months,” Dana said Peterson, the chief economist on the Conference Board.

What Bloomberg Economics Says…

“We still expect a recession to emerge in the second half of 2023, but confidence readings suggest the downturn could start later in this window than earlier.”

— Jonathan Church, economist

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The robust confidence and home purchase data are based on a still strong labor market. Unemployment is historically low and job vacancies are plentiful, although both metrics have eased in recent months.

Tuesday’s figures are also positive signals for economic growth. Business equipment orders received by US factories rose for the second time in May, suggesting companies are continuing to make longer-term investments despite high borrowing costs and economic uncertainty.

Shipments of non-defense capital goods, which serve as an indicator of actual spending, rose 3.4%, the sharpest increase since late 2020. That bodes well for GDP this quarter, said Jennifer Lee, chief economist at BMO Capital Markets.

“The delayed talk of the US recession (it’s not too bad until then) has been gaining followers in recent weeks,” Lee said in a note Tuesday. “The recent round of economic releases has been solid across the board.”

– With the support of Augusta Saraiva.

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