The issue of an upcoming recession in the US is back on the table. According to currency strategists at BCA Research, a recession in America is the most likely outcome, despite recent shifts in Federal Reserve policies.
Experts suggest that the Fed's recent rate cut has increased the chances of a soft landing for the US economy. However, BCA Research forecasts a downturn due to significant weakness in the US labor market.
In their report, bank analysts highlight the low layoff rates in the private sector, which dropped to levels last seen at the end of 2016. Back then, the unemployment rate in the United States was 4.7%.
The company believes that layoff rates are a more reliable indicator of labor demand than the number of job openings, given the much closer relationship between layoffs and unemployment than the Beveridge curve suggests.
Other signs of economic stress include the rise in the number of Americans who can only find part-time work and the increase in transitions from employment to unemployment.
BCA Research thinks that the recent uptick in unemployment is partly due to the growth of the labor force. However, experts emphasize that even traditional indicators like wage growth in the non-farm sector show signs of slowing down.
The recent revision of wage data from April 2023 to March 2024 indicates a slowdown, with wage growth in several industries significantly shrinking.
The US wage growth indicator has fallen below the boom-bust line, raising concerns about labor demand, BCA Research notes. According to analysts, preliminary wage data points to a looming downturn since drops below the 50 mark for these indices either fade quickly or signal an impending recession.
BCA Research also believes that the Fed's tight monetary policy is driving the economy toward a recession. Despite the recent rate cut, monetary policy will remain tight for a while, the experts conclude.
