why the US economy has not stagnated so far?

 Economists: Reasons why the US economy has not stagnated so far.

The US economy has so far managed to fall into the trap of recession, as most of the major companies on Wall Street predicted more than once that a recession would occur in the US economy during the year 2023.

After more than 6 months of 2023 have passed, there is still no indication of a contraction in production as expected. On the contrary, the indicators look somewhat optimistic - inflation is slowing rapidly, the labor market is holding up, unemployment is at low levels, and stocks are excited.

Economists at Swiss bank UBS have compiled a list of 10 reasons why a recession hasn't happened yet, and evidence that shows the US economy is much more resilient than many experts think, using the National Bureau of Economic Research's definition of a "recession," which tracks benchmarks. such as consumption, production and unemployment.

1. Monetary policy is not yet constrained.

Even after the Federal Reserve raised interest rates by 500 basis points over the past five quarters, America's inflation-adjusted borrowing costs remain very low. The yield on the 10-year Treasury note is currently just 1.52%.

The central bank's balance sheet — which is closely linked to the amount of money it injects into the economy through asset purchases — is still 80% larger than pre-pandemic levels, according to UBS. This indicates that monetary policy is still not tight by historical standards.

“Financial conditions have eased in 2023, and the Fed’s balance sheet and money supply are very adequate against pre-pandemic trends,” the Swiss bank said in its report.

2. Government spending is back on the rise.

Government spending is heading to rise again, after declining last year after the generosity of the epidemic period, and this also increases the amount of funds available in the financial system, which alleviates the severity of an economic recession, in addition to stimulating investment.

3. Powerful savings that boost consumption.

Savings made during the pandemic acted as a buffer against the rising cost of living, supporting consumption in the US economy. In addition, increases in the price of financial assets have boosted overall wealth.

On the other hand, the majority of mortgages are locked to fixed rates - this has served to shield these borrowers from the impact of the Fed's interest rate hike.

4. Debt levels are not very high.

"Consumer debt levels and default rates are in much better shape than before the 2008 financial crisis," the bank said in the note. “Family debt burdens appear to be manageable. Credit card delays are on the rise, but from historically low levels.

Companies do not suffer from an investment glut, and high inflation has reduced high debt levels, according to UBS.

5. Credit conditions are not very tight.

Credit market conditions have not become favorable to corporate borrowers, even after banking turmoil earlier this year prompted some banks to cut back on lending.

Spreads on high-yield Treasuries are down year-to-date, according to UBS, meaning lower-rated companies have easier access to public debt than they did 12 months ago. Issuance of such debt is also on the rise.

6. The job market remains strong.

US employers are still adding a large number of new jobs, pushing jobless claims below pre-pandemic rates.

“Employment rates are mostly approaching pre-pandemic levels,” UBS said in the note.

7. The economy is more stable.

The pandemic disrupted cyclical patterns in economic data, but they have returned to normal, which probably indicates that the economy is in a more stable position.

The bank said: «Spending on goods and services has returned to normal. Job growth volatility has returned to pre-pandemic levels. “Supply bottlenecks are also declining, even if they have not returned to normal.”

8. Sectoral contractions.

A separate slowdown in activity in different parts of the economy may have helped prevent a full recession to some extent, according to the bank.

9. Services growth remains strong.

While the industrial sector has seen some slowdown, its share of the economy is declining and the larger service sector has seen sustained growth.

"The recovery in service consumption has been slower, but it is still growing and making up a much larger share of the economy," the bank said. “The industrial sector’s share of the private sector continues to shrink.”

10. The economy is now less subject to fluctuations.

The US economy has evolved structurally in such a way that it is now less subject to cyclical ups and downs.

"It is a knowledge-based service economy that has become less sensitive to inventory cycles and energy costs - and as a result, economic activity is less volatile and expansions can last longer," the bank said.

Source: agencies.

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