The U.S. economy is in a holding pattern. Will it bounce back to a growth pattern or move into a recession?
Currently, the economy is facing stagflation, a term we have not heard since the late 1970s. The economic growth is stagnant, yet there are signs of inflation. This condition has placed the Federal Reserve on hold concerning changing interest rates.
The softness in the housing sector appears to be influencing retail sales and consumer spending. Consumer goods, auto sales and even air travel demand is a bit conservative, which is scaling back companies’ earnings expectations.
The yield curve is still inverted; short-term rates are exceeding long-term rates. This is usually a sign of a pending recession, with a high rate of predictability since 1957. However, long-term rates (i.e. 10-year bond) may be suppressed because of China’s and India’s demand for the U.S. longer term securities, which artificially keeps long-term rates below short-term rates.
China has a bubble in its stock market and urban real estate, so much so that government leaders are concerned about a sudden decrease, which could create social disorder. There’s nothing like 1.2 billion people mad at you.
Overall, the economy has moved from a green light last year to early yellow caution with movement toward mid-amber. The next six months could be interesting.
Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at firstname.lastname@example.org .