The prospect of a soft landing for the U.S. economy has dissipated, with a recession anticipated by mid-2024, according to insights from Citi's chief economist. The allure of a benign economic slowdown is contradicted by the data, revealing a trajectory towards downturn rather than stability.
Citi's chief U.S. economist, Andrew Hollenhorst, highlighted in a CNBC interview the disconnect between the optimistic narrative and the underlying economic indicators. Despite the appearance of a healthy economy characterized by low unemployment rates, vigorous consumer spending, and solid GDP growth, deeper analysis suggests emerging vulnerabilities.
Hollenhorst pointed to the labor market as a critical area of concern. Despite a robust jobs report for January, with 353,000 new jobs, closer examination reveals troubling signs such as a reduction in the average number of hours worked, a decline in full-time employment, and a slowdown in hiring within certain sectors like the restaurant industry.
These factors are pivotal, Hollenhorst argues, as the labor market's health is intrinsically linked to consumer spending and overall economic resilience. An increase in the unemployment rate would signify a significant downturn in economic activity.
Inflation, too, remains a persistent challenge, with recent consumer price index data indicating an unexpected surge in monthly inflation rates, adversely affecting the stock market.
Additionally, there is a noticeable increase in credit card delinquency rates, suggesting the onset of a consumer credit default cycle. This phenomenon is further exacerbated by rising interest rates, which strain consumers who rely on credit card debt, diminishing their ability to sustain consumption levels as delinquencies rise.
Retail sales figures have also reflected consumer reticence, with a marked 0.8% decline in January. This downturn in consumer spending, coupled with the broader economic indicators, supports Hollenhorst's skepticism regarding the feasibility of a soft landing.
Echoing this sentiment, Apollo Management's Torsten Sløk has also expressed doubt about the likelihood of a soft landing, aligning with the view that the U.S. economy is on a path towards recession rather than recovery. These perspectives underscore the complex challenges facing the U.S. economy, emphasizing the need for wealth advisors and RIAs to navigate this landscape with caution and strategic foresight.
