Economy remains strong despite building headwinds for growth
Job growth eased in June to its slowest pace in 30 months, but the labor market remains very tight. Job listings are plentiful (although trending down), and wages are still rising rapidly in many industries. Consequently, consumer spending activity remains solid and core inflation stubbornly elevated, held up by high costs for housing and services. Inflation did slow substantially in June but continues to run too hot for the Fed. Equity markets closed out a strong first half of 2023 despite continued headwinds for corporate earnings and elevated recession risks.
Recession conditions continue to be delayed by the virtuous cycle of strong job and incomes gains driving solid consumer spending. But most leading indicators suggest that activity is slowing broadly, while profit margins are being pressured by high costs and borrowing rates. We still believe that spending cuts by households and businesses in coming months, along with further rate tightening by the Fed, will result in a moderate recession starting in the fourth quarter of 2023. But the odds that a downturn could be pushed into 2024 are rising, even if a soft landing still appears unlikely.
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