US recovers quickly, says economic analyst 1:29
Editor's Note:
Lakshman Achuthan and Anirvan Banerji are co-founders of the Economic Cycle Research Institute (ECRI).
The opinions expressed in this comment belong solely to the authors.
(CNN Business) -
Despite continued optimism about the country's reopening, US economic growth is already beginning to slow.
Yes, year-on-year comparisons to the catastrophic conditions of spring 2020 have inflated recent economic growth data. But it is important to understand that there is much more to tell from a business cycle perspective. That is our conclusion, not only from the data that we regularly monitor and that define business cycles, such as GDP and employment, but also from the economic indicators that forecast peaks and troughs in those cycles.
At the bottom of a severe recession, the economy is like a coiled spring that bounces back in the early part of the recovery.
However, once it is almost completely unwound, its bounce is reduced.
The US economy grew at an annual rate of 6.5% in the second quarter
That's where we are today.
Although the economy continues to recover, our work shows that the pace of recovery is already beginning to slow.
That follows from our Coincident Index for the United States, which combines broad measures of production, employment, income, and sales.
The most recent data shows that the growth rate of the US economy, after peaking at nearly 20% in March, has slowed to 5% in June.
Furthermore, our analysis anticipates that the economy will continue to slow down in the coming months.
To be clear, we don't see a full-scale recession.
And in the second quarter of 2021, there was the highest year-on-year GDP growth in 70 years.
But even with the economy on track for a full reopening in the coming months and the unemployment rate on the verge of slowing, economic growth is already slowing down, as we first publicly warned here.
Part of this slowdown story is that long before delta concerns arose, consumer spending on goods began to fall as spending shifted from goods to services as the economy reopened further. .
But renewed spending on services is not fully offsetting the drop in spending on goods.
And the spread of the delta variant could make things even worse.
Moreover, a confluence of factors, ranging from red-hot house prices deterring first-time home buyers to shortages of raw materials and construction workers, is holding back the growth of home construction.
And this slowdown is acting as an additional drag on overall economic growth.
Rent prices in the US hit record highs 0:55
Ominously, our work also shows a strong link between the risk of severe stock market corrections and slowing economic growth.
Since 2010, all stock corrections that imply a decline of at least 10% in the S&P 500 started during these types of cyclical downturns.
The economy is in a similar situation to what it was a year after the end of the Great Recession of 2007-09.
In early 2010, with the undeniable rebound in the economy, optimism grew about a "V-shaped rally," in which the economy quickly rebounds like a coiled spring after bottoming out.
But the "coiled spring" rebound was actually about to slow down, and our frame was already showing signs of caution.
In early 2010, we predicted a slowdown in economic growth.
Indeed, real economic growth peaked in May and continued to decelerate for a whole year.
The factors that will determine the economic recovery of the United States, according to analyst
In the current cycle, when the economy started to recover last year, we explained why the ensuing stock market rally made all the sense in the world from a cyclical point of view, regardless of all the negative news about the pandemic and political conflicts. .
As economic growth expectations adjust downward in the coming months, the risk of major stock market bubbles will increase.
The speed of recovery from the recession caused by Covid-19 has been record, but it is important to understand that it will not improve any further.
US economy