Head of Macroeconomic Research
Summary: The broadest indicator of the US economy confirms that a recession is unlikely this year.
In today’s edition, we focus on the Chicago Fed National Activity Index. This is one of the indicators we closely track for the United States. It is the broadest measure of the US economy based on 85 indicators related to production, income, employment, consumption, real estate, orders and stocks. It is updated on a monthly basis, but it is of common use to refer to the three-month moving average in order to have a better understanding of the state of the economy.
A level above +0.7 usually suggests contraction and elevated risk of recession while a level below -0.7 indicates risk of inflationary pressures. The three-month moving average currently stands at -0.23 in December. The index has moved upward since past October which is concomitant with data improvement in Q4 2019, notably for US consumer sentiment, nonfarm private payrolls and ISM non-manufacturing. It also echoes with the intensification of the NY Fed’s market intervention.
Contrary to what bears have said over the past few months, the US economy is not heading for a recession anytime soon. The current level of the Chicago Fed National Activity Index, which has been very reliable in the past to identify turning points in the business cycle, is consistent with our view that the US economy is slowing down this year and is getting closer to its long-term growth potential of 1.5%. We don’t exclude that the US economy could accelerate in the second part of the year if a new round of tax cuts for middle class Americans is implemented before the presidential election.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
