And consumer confidence measured by the Conference Board rose to 109.7, the highest since early 2022 (forecast 104).
Here’s Yardeni Research’s Ed Yardeni’s spot-on take on the numbers (emphasis mine):
The permabears will have to postpone their imminent recession yet again based on today’s batch of US economic indicators, which suggest that our “rolling recession” is turning into a “rolling expansion.”
In aggregate, the data helped push the Bloomberg ECO US Surprise Index to the highest since February 2021 — a stark reminder of how woefully wrong gloomy consensus forecasters have been this year. These just aren’t the sorts of numbers you see in an economy careering toward a recession.
Even before Tuesday’s data, economists had begun to throw in the towel on their consensus projection of a recession starting in the third quarter. The median forecast in a Bloomberg survey of economists now estimates real gross domestic product to be roughly flat next quarter on an annualized basis, up from a trough forecast of -0.9% about seven weeks earlier. Before that, the consensus forecast was as low as -0.7% for the second quarter, which also had to be revised up drastically (the Federal Reserve Bank of Atlanta’s GDPNow nowcast currently estimates the second-quarter expansion at 1.8%).
Yet the forecasting consensus still sees a 64% probability of recession in the next 12 months. They’re not giving up on the downturn thesis, just pushing it back.
At some point during a long streak of consistently underestimating month-to-month data, shouldn’t we all reconsider whether economists’ overarching narrative may simply be wrong, not just early? For the past 15 months or so, economists and strategists have been obsessed with Federal Reserve history and the yield curve. The historical record, of course, showed that Fed increases and inverted yield curves tend to signal a recession not so far down the road, and that may have blinded some analysts to the signs of strength that were right in right in front of them.
Households and businesses emerged from the pandemic with strong cash balances and modest debt burdens that have made them extremely resilient to higher interest rates. The jump in mortgage rates cooled housing activity, but it didn’t sink prices because homeowners — many with mortgages below 3% that they were in a fine position to keep servicing — were in no rush to sell. Meanwhile, the job market remained strong thanks to a pent-up demand for labor that has continued to buoy US consumption.
Can this continue?
If the pessimists have one thing working in their favor, it’s resilient core inflation and a Fed that’s determined — perhaps overly so — to bring it back to its 2% target. If you believe that demand is keeping inflation high (and there’s some evidence to that effect), then all of this economic strength will simply poke the bear (in this case Fed Chair Jerome Powell). Powell has the tools to break the economy’s back if he decides he wants to. But at the moment, the outlook looks remarkably sunny. And recent history has shown we should pay attention to the economic reality before us and not get overly fixated on history and hypotheticals.
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