Morgan Stanley "US Not in Recession" Diagnosis
GDP Now Raises US Q3 Growth Rate to 2.9%
Recently, concerns about a US recession triggered by employment data, which has been the main cause of panic selling in global stock markets, are being regarded as excessive. There are also forecasts that the US growth rate in the third quarter of this year will reach the high 2% range. Amid heated debates over whether the US economy is in a recession, market panic selling sentiment has calmed, and the New York Stock Exchange collectively rebounded.
On the 6th (local time), US investment bank (IB) Morgan Stanley diagnosed in an investment note that "the US economy is not in a recession."
Regarding the Federal Reserve's (Fed) forecast for a rate cut this year, Morgan Stanley maintained its expectation of a 75bp (1bp=0.01 percentage point) cut. Since the US economy is not in a recession phase, the possibility of an emergency rate cut before the September Federal Open Market Committee (FOMC) meeting or a 'big cut' of 50bp at the September meeting was considered low.
Morgan Stanley analyzed, "The consumer growth rate is expected to slow from about 3% in the second half of last year to below 2% in the second half of this year," adding, "This slowdown is essential to ease demand and cool inflation."
The day before, Morgan Stanley also released an analysis suggesting that market anxiety about employment is excessive. Although nonfarm payrolls increased by 114,000 last month, the six-month average increase in employment was a solid 200,000. They also expected the August employment figures to likely recover. They predicted that a big cut in September would only occur if the August nonfarm payroll increase fell below 100,000 and the unemployment rate rose above 4.3%.
Not only Wall Street but also academia has continued to diagnose that recession concerns are overly exaggerated. While the risk of recession has indeed increased, they argue that the current market fear is overstated.
Jason Furman, a professor at Harvard University, pointed out, "Except for the unemployment rate, almost all real economy indicators are growing, and some are showing strength," adding, "Those who are certain that we will fall into a recession are dramatically overstating their knowledge of the economy." Yale University professor Ernie Tedeschi said regarding the July nonfarm payroll increase of 114,000, "It was exactly the size needed to meet the US labor supply," and diagnosed, "It was not a weak report but a trend report. In a state of full employment like now, there is nowhere to go but down."
There was also a forecast that the US will continue solid growth in the third quarter of this year. According to the 'GDP Now' released by the Federal Reserve Bank of Atlanta on the same day, the US gross domestic product (GDP) growth rate for the third quarter is expected to be 2.9% annualized quarter-on-quarter. This is 0.4 percentage points higher than the previous forecast of 2.5% released on the 1st. The US GDP growth rates were 1.4% in the first quarter and 2.8% in the second quarter. Although GDP Now is not the official forecast of the Atlanta Fed, it is widely used as a reference for future economic trends.
As market panic selling sentiment calmed, the New York Stock Exchange rose after a sharp drop the previous day. The Dow Jones Industrial Average rose 0.76%, while the S&P 500 and Nasdaq indices increased by 1.04% and 1.03%, respectively.
However, voices expressing concerns about the possibility of a US recession continue to emerge steadily. Andrew Hollenhorst, an economist at Citigroup, argued, "When people start worrying about a recession, it usually falls into one," adding, "Looking at the rise in unemployment, there has always been a stage in past economic cycles where temporary layoffs turned into permanent layoffs."
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