Daily Update: The Not-Yet Recession
Today is?Wednesday, September 7, 2022, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global. Subscribe?to be notified of each new?Daily?Update.?
Economist Paul Samuelson once joked that his fellow economists had predicted nine of the last five recessions. While the U.S. economy has been on the edge of a recession since 2022 began, economists have been hesitant to call the current economic conditions a recession, or to predict a recession with certainty. Samuelson would surely have appreciated the restraint.
According to the Economics & Country Risk team at S&P Global Market Intelligence, recent economic data indicated that the U.S.?did not enter a recession ?in the first half of 2022 and that growth was positive into July. Different economists use different metrics to track growth and determine whether the country is in a recession. Currently, those metrics tell a mixed story. The U.S.’ real gross domestic income, or GDI — an income-based measure of broad economic activity — rose in the first half of 2022.?Real gross domestic product declined during the same period. Monthly U.S. GDP?rose 0.4% in July ?following a flat reading in June. Real gross domestic output, the average of GDP and GDI, posted small increases in the first half of 2022.
S&P Global Ratings looked at a range of factors in projecting its economic outlooks.?Of the nine indicators ?it tracks to determine near-term economic growth prospects, six were negative and two were neutral in July. While the weakness appears to have continued in August, the definition of a recession, as determined by the National Bureau of Economic Research, has not been satisfied. The bureau demands the three conditions of depth, diffusion and duration be met in a downturn for it to qualify as a recession. Because of the mixed economic data from the first half of the year, the diffusion condition hasn’t been met.
As the Federal Reserve raises interest rates to cool inflation, there is a lot of talk about “hard landings” (recession) and “soft landings” (slowdown). Many economists believe that more interest rate hikes over 50 basis points will increase the chances of a hard landing. Since the Fed is aiming to bring inflation down to 2% on a sustained basis, it will be looking for positive news on inflation before it consents to pause further rate hikes.
The challenge for the wider economy is that increases in interest rates quickly cascade to industries such as automotive or housing. The average interest rate on a new vehicle loan rose to 4.8% in May 2022. In real dollar terms for consumers, that means the average loan annual percentage rate is?$79 higher per month ?than it was a year ago. Higher interest rates also negatively impact home sales. In the U.S., new home sales?dropped 29.6% ?on an annual basis, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.?
The economics team at S&P Global Ratings continues to assess the risk of a recession in the U.S. at 45% over the next 12 months, within a wider range of 40%-50%. That risk climbs closer to 50% heading into 2023 as cumulative rate hikes take hold. With respect to the memory of Paul Samuelson, the team is not necessarily predicting a recession yet. But it’s not denying the possibility either.
Today is?Wednesday, September 7, 2022, and here is today’s essential intelligence.
?Written by Nathan Hunt.?
Economy
Fallen Euro Offers Discounts In Europe's Private Sector
Eurozone economies face headwinds including soaring inflation, an energy crunch stemming from the war in Ukraine, an expected recession and the plunging euro that in July fell to parity with the U.S. dollar for the first time since 2002. With the best dollar-to-euro exchange rate in two decades — it remains around 1:1 — it is an ideal time for private equity deal hunting across a landscape of lower valuations.
—Read the article from?S&P Global Market Intelligence
Capital Markets
U.S. Climate Bill Primes Renewables Sector For Private Equity Investment
North America was already seeing rising private equity investment in renewable energy when the Inflation Reduction Act passed in August and added a slew of new, longer-term incentives for projects in the U.S. The energy and climate provisions of the wide-ranging bill, signed into law Aug. 16 by President Joe Biden, are "changing the landscape" of renewable energy investment by enhancing and extending tax credits, said Michael Masri, a partner at Kirkland & Ellis LLP who specializes in tax law and renewables.
—Read the article from?S&P Global Market Intelligence
Global Trade
Geopolitics, Energy Costs, Shifting Trade Flows Put Italian Slab, Flat Steel Imports In Focus
领英推荐
Global geopolitics and economic sanctions have European steel rerollers looking for alternative sources of slab, forcing a persistent and long-term adjustment to trade flows that has decoupled the region from its traditional dependence on CIS area supply. To capture the result of the transformation in steel slab supply chains, S&P Global Commodity Insights launched a new steel slab CIF Italy assessment, effective Sept. 2.
—Read the article from?S&P Global Commodity Insights
ESG
Listen: How The Hunt For ESG Talent Is Evolving
Sustainability and ESG have evolved significantly in recent years — and alongside this change, recruiting in the space has also changed. In this episode of the ESG Insider podcast, hosts Lindsey Hall and Esther Whieldon go behind the scenes of ESG recruiting in an interview with Kurt Harrison, a partner with the global executive search firm Russell Reynolds Associates, where he is co-head of the Global Sustainability Practice.
—Listen and subscribe to ESG Insider, a podcast from?S&P Global Sustainable1
Energy & Commodities
Interactive: Russian Gas Market Share In Europe On The Wane As LNG, Norway Step Up
Before skyrocketing gas prices encouraged Norwegian supply and LNG imports, Russia had been the largest single source of gas supply for Europe. However, it was Russia's invasion of Ukraine — followed by Gazprom reducing and then halting deliveries to Germany via Nord Stream — that signaled a tipping point in Europe's gas supply.
—Read the article from?S&P Global Commodity Insights
Technology & Media
Listen: Next In Tech | Episode 81: An Updated Cloud Conversation
Attitudes about cloud are maturing and organizations are putting the abstractions that they provide to work in better ways. Research Director Melanie Posey returns to the podcast to look at these changes and explore study data with host Eric Hanselman. The shift from capex to opex is no longer the main challenge. The data point to some success stories that these mature approaches are bringing. Will there be a time when we no longer talk about cloud?
—Listen and subscribe to Next in Tech, a podcast from?S&P Global Market Intelligence