Currently, the pivotal consideration for evaluating the US economic forecast is whether the notable slowdown in job growth in May indicates potential trouble ahead, or if it’s merely a brief interruption in an otherwise robust, though maturing economic expansion. We will receive initial insights following the release of the June employment report in a few weeks. In the meantime, the data trends present a mixed picture of the US macroeconomic landscape. Nonetheless, there is still no clear evidence suggesting the onset of a recession as a comprehensive examination of the data continues.
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Last week, US real estate investment trusts (REITs) led the pack in total returns among a series of proxy ETFs for major asset classes. The Vanguard REIT (VNQ) recorded a 1.1% increase over the five trading days ending June 17, marking its fourth consecutive weekly gain.
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● How Big Should Our Government Be?
By Jon Bakija, et al.
Summary via publisher (California University Press)
The debate over the appropriate size of government remains one of the most contentious issues in American politics and will continue to be relevant for the foreseeable future. There is likely a threshold beyond which increased government spending and taxation could negatively affect the economy, but identifying this point is complex. In this engaging book, noted authors Jeff Madrick, Jon Bakija, Lane Kenworthy, and Peter Lindert explore the limits of government growth and propose strategies for achieving both economic growth and equitable distribution.
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In May, new residential housing construction experienced a slight decline of 0.3% compared to the previous month, according to a report from the US Census Bureau reports. In contrast, the number of newly issued building permits rose by 0.7% during the same month. This mixed data is also reflected in the year-over-year changes for both metrics, albeit in opposite directions. The important takeaway is that the recent deceleration in housing construction growth is likely to persist in the foreseeable future. While this is not necessarily catastrophic, it does suggest that the housing sector’s potential to drive broader economic growth may be diminishing.
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Recent discussions around the possibility of a recession have increased significantly. “After seven years of growth, the U.S. economy seems to be on the brink of a recession,” declares an economics lecturer at Yale. Additionally, Bloomberg recently reported a rise in the probability of a US recession to 55%, citing a flattening yield curve as a contributing factor. Moreover, a survey of 400 real estate professionals indicates that many expect a recession within the next 18 months. While these gloomy forecasts could potentially be accurate, current data still suggest a low probability that the US economy has entered an NBER-defined recession recently.
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Last week, new applications for unemployment benefits in the US rose by 13,000, reaching a seasonally adjusted total of 277,000, according to reports from the Labor Department reports. While this figure remains low by historical standards and suggests ongoing labor market expansion, the latest release indicates a concerning resurgence in year-over-year gains, both for seasonally adjusted and unadjusted figures. Though this could be just a fluctuation, the recent trend might imply that the situation for this leading indicator is shifting.
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On June 15, the yield on the benchmark 10-year Treasury note decreased to 1.60%, marking the lowest level since late 2012, according to daily data from Treasury.gov. This decline follows the Federal Reserve’s decision to postpone any further rate hikes. The reasoning behind this pause is the economy’s current fragility, which cannot endure another tightening of monetary policy at this time. Consequently, the benchmark yield is approaching its all-time low just above 1.40% from July 2012. While it remains uncertain if we will see a new record low soon, it’s still premature to dismiss this possibility. In essence, the long-term bull market for bonds may not yet be over.
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In summary, while the economic indicators present a mix of optimism and concern, the prevailing sentiment suggests that the potential for an imminent recession remains low. Continued observation of key metrics will be essential in the upcoming months as we analyze the direction of the US economy.
