Will Slowing Growth Worries Turn To Recession Fears?
Michael Kramer | Oct 08, 2021 05:33AM ET
This article was written exclusively for Investing.com.
It may seem outlandish to think that the US economy could be heading towards a recession, especially when second-quarter GDP growth was more than 6.5% and third-quarter projections were around 7%story from Fitch Ratings notes that supply chain disruptions are now starting to affect the bottom lines of diversified industrials, potentially resulting in these companies revising earnings guidance down as they announce third-quarter results.
Other concerns, such as consumer sentiment levels, have fallen dramatically here in the US. The latest University of Michigan consumer sentiment reading was 72.8, a significant drop from its reading of 88.3 in April. In the past, a reading below 70 has been associated with a recession in the US economy the majority of the time.
Signs of Stabilizing
In recent days, there has been some evidence to suggest that the growth has been stabilizing, based on the ISM manufacturing report for September, which showed an improvement over August, rising to 61.1 from 59.9, while the services segment rose to 61.9 from 61.7. These improvements are noteworthy and are still solid readings and could be an early sign that the economy is beginning to reaccelerate after a very significant slowdown. However, it is too early to determine whether that shift lasts.
What is very clear is that the economy appears to have taken a dramatic hit in the third quarter, with the pace of GDP growth slowing dramatically. Whether it turns out that a 1% growth rate was too low or too high doesn't matter. Because at this point, even a 4% GDP growth rate, although very strong, will be a significant disappointment based on what expectations had been.
At the same time, it should not be discounted that the economy has slowed materially and the risk to markets that come with it.
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