Investment group

The US recession is already here, according to Wells Fargo Investment Group

According to the Wells Fargo Investment Institute, it is no longer necessary to worry about the timing of a recession in the United States, because we are already in one.

The bank’s investment strategy arm says the U.S. is entering recession in the second half of the year — in other words, now — amid faster and more widespread inflation than expected, weakening consumer sentiment and businesses reporting a shift in spending. This forecast differs from just over a month ago, when the group experienced a mild recession and not before the end of this year, but has increased the timing and severity to “moderate”.

With several major Wall Street players like Guggenheim and Nomura Securities seeing a recession by the end of next year, the institute’s call marks one of the first to say a downturn is coming. occur. This differs even from Wells Fargo’s own economists in a separate department, who forecast only a mild recession and not before mid-2023.

“There’s the technical part of the recession, but then there’s the significant deterioration in consumption and employment,” said Sameer Samana, senior global markets strategist at the investment group. “The technical part is a story of the first half and the bulk of unemployment and consumption is the second half” of the year, he said by telephone Thursday.

US GDP fell about 1.6% in the first quarter, and real-time data from the Federal Reserve Bank of Atlanta sees a drop of a similar magnitude in the three months ended June 30 – but the The government’s official report on a preliminary estimate won won’t be released until later this month.

If this showed a negative footprint, the United States would be in a technical recession. But a more widely used measure – and used by the National Bureau of Economic Research, the private organization responsible for calling the official timing of a recession – is a sharp drop across the economy from a series of d indicators, including labor market, investment and expenditure.

That’s what the Samana group said will be felt by Americans for the rest of this year. They now forecast unemployment rates of 5.2% by the end of 2023 and 4.3% this year, both up from their previous forecasts of 4.4% and 3.8% respectively.

The jobless rate in June is expected to hold at 3.6% – near the lowest in more than 50 years – before government data is released on Friday.

Consumer prices, which are already rising at the fastest rate in 40 years, are expected to have accelerated further in June to 8.8% from a year earlier, ahead of government data released next week. This will force the Fed to act more aggressively to raise interest rates to slow price growth, leading to a bigger shock to the labor market and spending, according to Samana.

He also noted recent comments from retailers Walmart Inc. and Target Corp., which signaled a shift in what people are buying as prices accelerate. This was marked by more spending on basics like food and less on discretionary purchases like clothing.

This article was provided by Bloomberg News.