Michael Kantrowitz, a chief investment strategist at Piper Sandler, cautions that the US economy is steaming towards a recession. He made this prediction through his own litmus test: employment changes compared to 2022.
The expert reckons that the US economy has already got caught in a recession trap, but the authorities are hesitating to admit the truth. Global investors and analysts are currently divided into two camps: those who have sniffed out bad omens and those who believe in the power of the US economy and its resilience.
Michael Kantrowitz belongs to pessimists. He detected the signs of softness in the US labor market. He is indifferent to the fact that Wall Street has revised sentiment about the likelihood of a recession. Earlier, leading analysts insisted that a recession was on the horizon. At present, many analysts doubt this scenario. Nevertheless, Michael Kantrowitz is certain that the US labor market is losing momentum.
The expert suggests an accurate gauge, i.e. the change of the unemployed Americans in per cent from a year ago. The threshold level is the growth in the number of unemployed by at least 10%. As of now, the jobless rate in the US has increased by 7.7% compared to 2022. Besides, it has been steadily rising, being a precursor to the troubled times in the US economy, the expert at Piper Sandler highlights.
The analyst refers to the criteria applied by the Federal Reserve. At the early stage of the rate hike cycle, the regulator pinpointed four criteria for assessing the strength and performance of the US economy. These key criteria are the metrics on the housing sector, durable goods orders, corporate profits, and employment.
Nowadays, the US housing sector is at low gear. The evidence of that is mounting uncertainty among real estate developers and weak volumes of home sales. Michael Kantrowitz thinks that the housing market is the first sector to bear the brunt of aggressive monetary tightening. Other sectors hurt by high borrowing costs are factory orders, corporate earnings, and the labor market.
The expert points out that another bad omen of the looming recession is sluggish manufacturing activity. The recent growth in corporate profits is of little help in this situation, Michael Kantrowitz warns. According to forward-looking indicators, the manufacturing sector is shrinking in Q4 2023. The labor market is the only sector to stay afloat so far.