Tuesday, May 21, 2024

Citi Forecasts Mid-2024 Recession, Challenging “Soft Landing” Outlook

The anticipation of a “soft landing” for the US economy is fading, replaced by the ominous prediction of a recession in the middle of 2024. 

Extracting insight from multiple sources, we explore this economic forecast.

“While it may appear that the economy is flying high with impressive GDP growth, low unemployment, and strong consumer spending signs, there are significant indicators hinting at an upcoming decline,” asserts Citi’s chief economist, Andrew Hollenhorst.

Despite public presentations of an economic panorama blessed with robust health, Hollenhorst insists the prospects of a “soft landing” are dwindling. 

The economic data, though strong on the surface, hides distressing signs observed in the labor market and retail sales data.

Deceptive Job Market Trends

Credits: CNBC

In Hollenhorst’s view, the labor market is a significant weak spot in the economy. January’s jobs report boasted adding 353,000 jobs to the economy. 

However, a deeper analysis reveals a decrease in the number of hours worked, a reduction in full-time workers, and a hiring freeze in hospitality and service sectors.

“The labor market is crucial,” Hollenhorst explains. “If the unemployment rate remains low, people will continue to spend, holding up the economy. 

But, if unemployment begins to rise, which we project it will, this could trigger a material decline in the US economy.”

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Inflation Worries and Credit Card Defaults

Citi Credit Cards
Credits: One Mile at a Time

The incessantly high inflation and an uptick in the Consumer Price Index further compound the situation. Rising credit card delinquency rates also provide cause for concern.

Top economic analyst David Rosenberg warns, “A consumer credit default cycle has already begun, with one in twelve credit card users failing to meet their payment obligations.”

Consumer Weakness: Implications in Retail

Moreover, consumer weakness has become evident in the retail sector. A notable drop in activity was registered in January, indicating less consumer spending.

“There are consumers with excess savings, but those relying on high-interest credit card debt and dwindling savings are increasingly defaulting, leading to rising delinquency rates,” Hollenhorst notes.

Also Read: PepsiCo Q4 2023 Earnings: Surpassing Expectations Amid Economic Headwinds

The Emerging Consensus

Hollenhorst’s outlook is echoed by peers in the financial sphere, including Apollo Management’s Torsten Sløk, who suggests that a ‘soft landing’ now seems “least likely.”

As Wall Street digests potentially disruptive scenarios, the underlying economic narrative appears to be shifting. 

The probability of a soft landing is shrinking, superseded by murmurs of a looming recession, fueling uncertainty about future economic stability.

In this precarious environment, resilience and strategic foresight will be the keys to navigating any potential economic storm. 

As 2024 approaches, it is growing increasingly clear that the United States will require both in ample measure.

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