Will the U.S. economy go into recession?

Spark Global Limited reports:

Two recent developments have raised concerns about the risk of a us recession next year: the end of subsidies; Second, the US real GDP fell sharply to 2% on an annualized basis in Q3. In addition, October saw the “stagflation trade” in the US, which in theory is followed by recession. Will there really be a recession in America?

Q3 US economy: COVID-19 and “lack of core” impeding growth; Service consumption remains a bright spot.
1) The rebound of the epidemic has depressed the willingness of middle – and low-income Americans to work. The sharp rebound in the number of COVID-19 deaths in the US in August and September constrained employment, thus constraining the supply side of the economy and exacerbating endogenous inflation.
2) “lack of core” hinders automobile manufacturing; Hurricanes hamper energy extraction and product processing. Hurricane IDA’s landfall in the US at the end of August led to a decline in extractive industry capacity utilization and a decline in oil and coal production index. A “chip shortage” has hampered Q3 car production. In 2020, automobile, oil and gas exploitation, oil and coal product production and chemical product production together accounted for 3.6% of the added value of the industry, and the slowdown of the production of these industries will exert an obvious restraint on the growth of the US industry and even the economy.
3) Service consumption remains a bright spot in Q3 economic data. From 2003 to the pre-epidemic period, the us consumption of personal services in constant prices peaked at 4.2% on a quarter-on-quarter annualized basis, which is not easy to achieve as high as 7.6% in the context of the rebound of the epidemic in Q3.

Is the stagflation trade over?
1) There was a brief “stagflation trade” in the US. A surge in oil prices during the National Day holiday has raised inflation expectations, while the rebound of the epidemic and shortages have also weighed on the economy. In turn, real interest rates fell and inflation expectations rose, leading to a “stagflation trade” in the US.
2) Is the stagflation trade over? At least not for long. As the epidemic has cooled down slightly and savings have been rapidly consumed, the willingness of middle and low-income americans to find jobs has increased significantly in October. The big probability of the US economy in Q4 is significantly better than in Q3. Moreover, the odds of oil prices accelerating further higher in the near term are low. In addition, under the influence of factors such as the end of fiscal transfer payments and the recovery of service consumption scene crowding out durable goods consumption, the quarter-on-quarter increase of US CPI and PCE in Q3 has been lower than that in Q2, and it is expected that the quarter-on-quarter inflation pressure in Q4 is also small. But the us PCE and CPI did not necessarily fall in November-December due to the base.
3) The most worthy of attention is still Biden’s New Deal, once the tax boots fall to the ground, the probability of the US stock is threatened.

Will the withdrawal of fiscal transfers cause a us recession next year?
1) Ending fiscal subsidies will do more good than harm. Although the post-epidemic fiscal subsidies stabilized the US economy, they did not significantly boost economic growth, but formed a large spillover effect and intensified the inflationary pressure.
2) What are the bright spots for the US economy next year if infrastructure fails to materialise? A rebound in consumption of personal services will be the basic underpinning of US economic growth next year. As the epidemic cools down, American companies are likely to expand production. With or without infrastructure, real GROWTH is expected to exceed 3% next year.
3) The us economy may be “overheating” next year, according to forecast economic readings. Although both real GDP growth and CPI year-on-year will be lower than this year, the CHARACTERISTICS of the US economy suggest real growth of more than 3% and CPI of about 3.2%. Year-over-year should be defined as “overheating” rather than “recession”.

[Source: Spark Global Limited]

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