- The dreaded “R” word is on everyone’s lips, with more and more Wall Street analysts predicting a recession in the United States.
- But Truist’s Mike Skordeles said consumption is strong and inflation will come down, supporting the economy.
- He told Insider the economy was likely heading for a tougher zone, but said recession fears were overblown.
At the end of last year, hardly anyone was talking about a US
. Now the dreaded “R” word is on everyone’s lips.
A consensus is building on Wall Street that US economic growth is soon likely to become negativeas the
raises interest rates to curb runaway inflation.
Russia’s invasion of Ukraine drove up energy prices, adding to inflation and making the Fed’s job even harder. China’s zero-COVID policy — which has shut down swaths of its economy — isn’t helping.
Traditionally, a recession is defined as two quarters of declining gross domestic product. Needless to say, it’s not good for companies or their stock prices. The S&P500 has fallen this year, in part due to growth concerns.
But despite all the pessimism, many doubt the recession narrative and say the US economy is still strong.
Michael Skordeles – a senior US macro strategist at Truist Advisory Services, part of the $66 billion bank – is one such person.
“It’s the consumer, stupid,” he told Insider this week, paraphrasing James Carville famous saying.
“We’re not saying the risks haven’t increased,” he said. “All the conditions were very favorable, and now they’ve become less favorable than that. But that doesn’t mean it’s a recession.”
Skordeles said Americans have plenty of money, thanks in large part to the pandemic stimulus. Truist estimates that consumers have accumulated $4.7 trillion in savings and deposits since the start of the coronavirus outbreak.
But Skordeles said $1.2 trillion of that has come since May 2021, when stimulus measures had mostly ended, largely because of higher wages.
Skordeles said the job market was strong — unemployment was 3.6% in April, near the lowest level since the 1950s – helping people’s wages and incomes rise. And while that’s inflationary, it also means that spending should hold up.
Still, the Truist strategist said there was also good news on inflation. A spike in spending on goods during the pandemic has strained supply chains and contributed to soaring prices.
However, there is now evidence of a rotation towards service spending, as life gradually returns to normal after the pandemic. Skordeles said this should help ease inflationary pressures.
Retail sales rose 6.7% in April compared to the previous year, but spending on food services, such as restaurants and drinking places, increased by 19.8%.
Spending on services increased
At the heart of most economists’ recession forecasts is the Fed. In the eyes of many analysts, the central bank will have to raise interest rates so high to stifle inflation that it derail the economy.
Still, Skordeles said the recent growth slowdown seen in the US and elsewhere – due to rising energy costs and uncertainty, among other things – could actually be a good thing for the economy as a whole, in the medium term. Combined with the shift to services spending, this will likely mean that the Fed will rise less sharply than many expect.
“It’s going to be uneven. It’s not going to be a straight line. We expect the following
“, Skordeles said. “But I think we are going beyond that.”