UBS Maintains Soft Landing Outlook for US Economy, but Downturn Risks Looming
UBS Financial Services, in a recent note, continues to predict a soft landing for the US economy but warns of significant risks of a downturn. Key factors like consumer spending and the upcoming interest rate cuts by the Federal Reserve will play a crucial role in determining the economic trajectory.
The US labor market has seen some shifts, with the unemployment rate rising from 3.7% in January to 4.3% in July. While historically such increases have signaled economic downturns, UBS suggests that the current labor market strength may defy expectations.
Although weekly jobless claims have been on the rise, the overall level remains low compared to historical norms, indicating a cooling but not a significant downturn. Consumer spending, fueled by income growth, is expected to be pivotal for the economic recovery.
Recent retail sales data has been stronger than anticipated, providing some relief amidst the uncertain outlook. However, concerns remain as the US government revised down job growth estimates, and there were signs of softness in factors like wages and hours worked.
UBS's base case is still a soft landing, but they have increased the probability of a hard landing to 25%. Inflation trends have shown some positive signs, with a slowdown in headline inflation and easing broader inflationary pressures.
The Federal Reserve is poised to start cutting interest rates, with UBS predicting a total of 100 basis points of rate cuts by the end of the year. The upcoming FOMC meeting in September will provide more clarity on the Fed's monetary policy and its efforts to steer the economy towards a soft landing.
Overall, while the outlook is uncertain, staying informed about these economic indicators and understanding their implications can help individuals make better financial decisions in these challenging times.