Don't blame me, blame the data

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Dear Reader,

The risk of a recession continues to be on the top of many people's minds.

Everything ranging from Google search results to money manager surveys suggests as much.

Sure, there have been some anecdotes and one-off economic stats that have made for some scary headlines.

And high inflation certainly contributes to overall frustration with the economy.

However, as two Goldman Sachs economists illustrated in a research report, the data overwhelmingly suggests that the economy is growing and should continue to grow thanks to massive tailwinds.

"Worrying news in corporate earnings calls and downside surprises in the May survey data have led some investors to worry that a recession is arriving ahead of schedule," said economists Spencer Hill and Manuel Abecasis.

In the 16-page report, economists Spencer Hill and Manuel Abecasis aimed to dispel those recession concerns with a comprehensive review of consumer demand, business activity, and labor market indicators.

Here are a few highlights:

On U.S. GDP, the economists note that "the activity data reported so far this year indicate a slowing but still positive trend in GDP growth."

In other words, the U.S. economy is bending, not breaking.

On consumption, they say that "with very healthy household balance sheets and moderating headline inflation, we expect the early-summer lull in consumption growth will prove short-lived…"

In other words, consumers can prevent any slowdown from becoming an economic calamity.

On the labor market, they conclude that the data "indicate a deceleration rather than a contraction." They expect job growth to decline from unusually high levels and layoffs to pick up from unusually low levels, but they argue that these metrics would largely reflect "normalization" in a growing economy. This would very much be in line with the Federal Reserve's plan to cool the labor market to bring down inflation while avoiding a recession.

The report findings remind us that we should all be mindful of fear-invoking headlines in the news.

Indeed, after a review of the data, the economists said they remain optimistic that the U.S. will avoid a recession.

"We believe fears of declining economic activity this year will prove overblown unless new negative shocks materialize," they wrote.


Andrew Graham

Editor, Silver Ridge Market Report

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