Why recession fears are likely overblown

Bullish:

• $US ECONOMY - Discussing the overall positive outlook on the US economy, job growth, and potential for continued healthy economic activity.

  • “So I'd say the place that we're at right now on job growth looks fine.”

    David·0:00

  • “So broadly, I think that's right...overall economic activity continues to grow at a healthy pace.”

    David·0:00

  • “I think there are certainly things to keep an eye on...But I suspect what we are seeing is more deceleration than an actual dip into recession.”

    David·0:00

  • “I don't see the overall economic data is particularly weak. I don't see any major financial imbalances that I think are likely to unravel, and the Fed has a lot of room to cut.”

    David·0:00

  • “So if it does turn out that incoming data over the course of the next month or 2 look weaker than expect, they are, as chair Powell said, very well positioned to support the economy by cutting interest rates.”

    David·0:00

  • “I don't think they would hesitate at all...Investors are already thinking the Fed might cut by 50 basis points in September instead of 25. I think that's not unreasonable to be thinking about.”

    David·0:00

  • “The other point that I would make is even if our reading of the labor market situation is a little bit off...Bear in mind that the Fed now has 525 basis points of room to cut.”

    David·0:00

  • “I think it was a weak report, but I do think that some of the fears were overdone.”

    David·0:00

  • “So if you're just in a kind of typical uneventful period where nothing at all seems to be going wrong, nothing particularly remarkable is raising recession concerns, 15% is about where you would be.”

    David·0:00

  • “I think we're decelerating for sure, but the data would seem to suggest that we're growing at potential.”

    David·0:00

  • “So a lot of these negative anecdotes come from companies that sell goods. But, of course, you have to keep in mind that the flip side of weakness in the good sector has been strength in the services sector.”

    David·0:00

  • “I would be quite skeptical of that interpretation for two reasons. 1st, I just don't think it's right that the overall message from earning season is really that negative.”

    David·0:00

  • “Actually, the message is deceleration, to be sure, but it's still healthy growth rate.”

    David·0:00

  • “Earning surprises also in aggregate remain positive.”

    David·0:00

  • “So I think that the take that you often hear in markets is overweighting some of the more negative company anecdotes.”

    David·0:00

  • “And I think that is an especially important thing to keep in mind at the moment because over the last year, we've had the tail end of this goods back to services transition.”

    David·0:00

  • “There are other things that can go wrong as well. For example, I worry at the moment that when companies report softness in global sales, we might be conflating weakness abroad with weakness in the US.”

    David·0:00

  • “And there are just inevitably biases in these sorts of things where sometimes there might be a temptation if your company's revenues are weaker to attribute that to weakness in the consumer broadly rather than to kind of company level performance.”

    David·0:00

  • “Or there might be a temptation with hundreds of company level anecdotes available to pick out the ones that match, you know, popular narratives at the moment like the recession narrative.”

    David·0:00

  • “One issue is just I don't think there's any negative shock at the moment, and it's rare that the economy just sort of rolls over spontaneously.”

    David·0:00