BCA Research Predicts US Recession Despite Recent Fed Policy Shifts
In a recent report, BCA Research maintains that a US recession is still the most likely outcome, despite the Federal Reserve's recent rate cuts. While the rate cuts have slightly increased the chance of a soft landing, BCA strategists continue to forecast an economic downturn, primarily driven by weakening labor market conditions.
The declining private sector quits rate, which has reached levels not seen since late 2016, is highlighted as a key indicator of cyclical labor demand by BCA. This, along with other signs of stress such as an increase in part-time employment and transitions from employment to unemployment, point to a troubled labor market.
BCA also notes that traditional indicators like nonfarm payroll growth are showing signs of deceleration, with payroll revisions indicating a slowdown and weakening growth across multiple industries. The US payroll momentum indicator has also fallen below the boom/bust line, raising concerns about labor demand.
Despite arguments that rising labor supply could explain the softer unemployment data, BCA warns of deeper issues ahead. The firm points to tight monetary policy as a contributing factor to the recession outlook, even after the Fed's rate cuts. While AI-related investments could potentially boost aggregate demand, BCA cautions that this remains a projection rather than a current reality.
In conclusion, BCA's analysis suggests that a US recession is on the horizon, driven by weakening labor market conditions and tight monetary policy. Investors and individuals should be prepared for potential economic downturns and consider adjusting their financial strategies accordingly.
