BCA Research Predicts US Recession Despite Fed Policy Shifts
In a recent report, BCA Research maintains that a US recession remains the “most likely outcome,” despite recent policy shifts by the Federal Reserve. The Fed's rate cuts have slightly increased the chance of a soft landing, but BCA's strategists continue to predict an economic downturn, mainly due to weakening labor market conditions.
BCA points to the declining private sector quits rate as a key indicator of cyclical labor demand, highlighting the increase in Americans only able to find part-time work and transitions from employment to unemployment. Traditional indicators like nonfarm payroll growth are also showing signs of deceleration, with payroll revisions and diffusion indexes indicating a slowdown across multiple industries.
The firm also notes that the US payroll momentum indicator has dipped below the boom/bust line, raising concerns over labor demand. Despite arguments that rising labor supply could explain softer unemployment data, BCA warns of deeper issues ahead, with preliminary payroll benchmarks signaling a potential downturn.
Furthermore, tight monetary policy is seen as contributing to the recession outlook, with BCA's strategists suggesting that monetary policy will remain tight for some time. While AI-related investments could potentially boost aggregate demand in the US economy, BCA cautions that this projection is not yet a reality, and there is no clear basis to expect a mid-1990s-like outcome where recession is avoided despite tight monetary policy.
In conclusion, BCA Research's analysis highlights the looming threat of a US recession, driven by weakening labor market conditions and tight monetary policy. Investors and individuals should be cautious and prepared for potential economic challenges ahead, as indicated by the latest data and trends. It is essential to stay informed and make informed financial decisions to navigate through uncertain times.