Surprisingly Strong US Economic Data Keeps Recession Fears at Bay

(Bloomberg) — A flurry of data showed surprising strength in several corners of the US economy, painting a picture of resilience and further delaying any likelihood of recession.

Purchases of new homes climbed to the fastest annual rate in more than a year, durable goods orders topped estimates and consumer confidence reached the highest level since the start of 2022, according to the Tuesday reports. Another release showed housing prices in the US rose for a third-straight month.

“The consensus view continues to stubbornly call for a recession starting in a few months, but the economic data are telling far different story right now,” Stephen Stanley, chief US economist at Santander (BME:) US Capital Markets, said in a note. “Resilience remains the watchword.”

While the data don’t reject the possibility of a recession in the coming year, they do give reason to believe a downturn isn’t right around the corner, let alone a foregone conclusion. The latest reports on retail sales, inflation-adjusted consumer spending and the job market also support that notion.

Treasuries declined after the reports, girding speculation that the Federal Reserve will resume raising interest rates after this month’s pause. Chair Jerome Powell may reinforce that tilt on Wednesday as he and other central bankers convene at a forum in Europe.

Read more: Morgan Stanley (NYSE:) Sees Fed Hiking Rates in July After Powell Speech

Housing Boost

A rebound in housing demand, despite high mortgage rates, suggest that the economy is so far withstanding higher borrowing costs. While homeowners are reluctant to move and take on a greater mortgage, prospective buyers have adjusted to the shift and are increasingly seeking out new construction instead.

Purchases of new single-family homes increased 12.2% to an annualized 763,000 pace last month, government data showed Tuesday. The figure marked the third-straight monthly advance and beat all but one estimate in a Bloomberg survey of economists.

Read more: Homebuilding Set to Boost US Economy After Two-Year Contraction

While consumers in June reported less appetite to buy a home and other major purchases like cars and appliances, confidence surged in the month, according to the Conference Board’s index. The advance was driven by greater optimism about the labor market and the economic expansion.

Even though the group’s measure of expectations — which reflects consumers’ six-month outlook — rose to the highest level this year, it still signaled “consumers anticipating a recession at some point over the next 6 to 12 months,” said Dana Peterson, the chief economist at the Conference Board.

What Bloomberg Economics Says…

“We still expect a recession to unfold in 2H23, but the confidence reading suggests the downturn could begin later in that window than earlier.”

— Jonathan Church, economist

To read the full note, click here

The robust confidence and homebuying data are rooted in what’s still a strong labor market. Unemployment is historically low and job openings are plentiful, though both metrics have been softening in recent months.

Tuesday’s figures are also positive signals for economic growth. Orders placed with US factories for business equipment rose in May for a second month, indicating companies continue to make longer-term investments despite high borrowing costs and economic uncertainty.

Shipments of nondefense capital goods, which are a proxy for actual spending, jumped 3.4%, the biggest increase since the end of 2020. That bodes well for gross domestic product this quarter, said Jennifer Lee, senior economist at BMO Capital Markets.

“Delayed (not a bad thing, until it is) US recession chatter has gained more followers over the past few weeks,” Lee said in a note Tuesday. “The latest round of economic releases was resoundingly solid.”

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