The U.S. economy: resilient, not recessionary

Despite the numerous headlines around potential stagflation and recession, the U.S. economy continues to show signs of strength and stability. While growth has cooled from its post-pandemic highs, the data points to a controlled normalization. Here’s what’s happening, and what it means for your portfolio: 

• Growth is slowing, not contracting: Economic growth has eased from the rapid pace of the post-COVID recovery; year-on-year GDP growth remains positive, while quarter-on-quarter numbers are so far avoiding the back-to-back contraction that defines a recession. Consumer spending and confidence are both holding up, while business investment remains steady.
• Jobs market is still strong: Unemployment is staying low around 4.2%, layoffs are limited, and wage growth is moderating. In addition, last week’s non-farm payrolls number came in better than expected. These are all signs that the labor market is adjusting, not unraveling.
• Inflation is cooling: Core PCE, the Federal Reserve’s preferred inflation gauge, has been trending down and is nearing the Fed’s 2% target. It’s currently sitting at around 2.5%. This week’s reading showed that underlying inflation in May rose less than forecast.
• Credit conditions are stable: Credit markets show no signs of systemic stress; high-yield spreads are stable, consumer delinquencies are low, and banks remain well-capitalized. 

The U.S. economy isn’t crashing. It’s adjusting, and it remains resilient. Growth is moderating, inflation is easing, and the job market is holding firm. Risks remain, but the data doesn’t seem to justify the gloom we’ve seen from some corners of the market. With the S&P 500 less than 2% below all-time highs, the market seems to agree that the U.S. economy, and U.S. equities, are holding up well so far. 

Maverick Lin contributed to this article. All data from Bloomberg.