Yahoo Finance Why the economy might be in a 'rolling recession'
The much-anticipated recession of 2023 has yet to materialize. Some of the latest economic data point to more signs of strength than weakness.
One strategist has a term for what that says about the state of the US economy.
"We're calling that a rolling recession," David Bailin, chief investment officer at Citi Global Wealth Investments, told Yahoo Finance.
He explained how some sectors of the economy are already in decline, while others, like travel and leisure, are still strong.
"Clearly commercial real estate is in recession," he said. "Some of our manufacturing, basic consumer manufacturing is in recession right now."
"Those are shrinking businesses in the United States...but the overall economy is not," he explained.
Indeed on Friday, the latest S&P Global US manufacturing PMI index came in at 46.3 versus 48.5 expected. Anything below the level of 50 is contraction. Still, overall, the survey data pointed to an economy that continues to expand.
'Interest rates affect everything'
The Federal Reserve's task of cooling the economy through rapid interest rate hikes in order to tame inflation has not been an easy one. Economists say the longer interest rates stay at this level, the likelier it is that other sectors will be impacted.
"Rates ultimately affect everything," said Bailin. "Smaller and medium-sized companies that have capital needs are now disadvantaged. That ultimately will constrain their growth or cause them to lay off people, or cause them to go out of business."
The labor market, though slowing, continues to add jobs. In May 399,000 jobs were created, topping Wall Street estimates for 195,000. Unemployment in the US sits at 3.7%.
"I think the labor market hit is still yet to come," Charles Schwab Chief Investment Strategist Liz Ann Sonders told Yahoo Finance earlier this month.
"I think the next month or two...I think what companies are saying about their cost structure, specifically labor, will be an important tell, whether that is the potential proverbial next shoe to drop," she added.
Until bigger cracks start appearing, some strategists are cautious to call it a recession in the near term.
"We lowered our judgmental probability that the US economy will enter a recession in the next 12 months to 25% (from 35% previously)," Goldman Sachs economists noted earlier this week.
Jay Hatfield, CEO at Infrastructure Capital Management, points to the residential housing sector as an indicator that it's too early to make recessionary calls.
"We do not believe that we will enter a recession in the US in the short run as the US housing sector is resilient due to a shortage of homes for sale," said Hatfield.
Another sign of strength is consumer spending. May's retail sales, which are not adjusted for inflation, advanced by 0.3% month-over-month, versus estimates for a decline of 0.2%.
"Defying expectations, the headline May retail sales print shows that consumer spending remains resilient," Oren Klachkin, lead US economist at Oxford Economics wrote in a recent note.
He added, "the recession will be delayed as long as consumers continue to spend."
For now, the Federal Reserve is playing a balancing act. The central bank paused its rate hikes but warned one or two more raises may come later this year to keep up the fight against inflation.
On Thursday, Fed Chair Jerome Powell reiterated to lawmakers that the central bank expects to raise interest rates again, but at a slower pace to avoid tipping the economy into recession.
Ines Ferre is a senior business reporter at Yahoo Finance. You can follow her on Twitter @ines_ferre
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