DE | Sinai Economic and Market Perspectives | Holiday Season Cheer?—Or Not? Economy Quite O.K.. – 12/12/22

Posted December 13, 2022 by rvillareal

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Holiday Season Cheer?—Or Not? Economy Quite O.K.. Inflation Downshifting But Still Entrenched High. Fed 2% Mission Continues…But With a Shift. Politics and Geopolitics a Little Better

Economy O.K. and Inflation Diminishing
Holiday Season Cheer is an o.k. economy with up momentum approaching yearend and still, though softening, an essentially fully employed Labor Market. The Labor Market has been supporting an economy showing signs of a widely expected potential Recession but not enough to actually signal one. For Decision Economics, Inc. (DE) “Recession” Odds are 25%; “Growth Recession” Odds, essentially the Federal Reserve forecast, 10%; the DE Basic Prospect a “Soft Landing,” (Odds 60%).

In a time of huge changes and uncertainties, economic and other, the resiliency and continuing strength of the U.S. economy and its inflationary implications were “bad news” for financial markets in 2022, both Fixed Income and Equity, with large increases of interest rates as the Federal Reserve belatedly fought high and rising inflation and now continuing to mark up the possible endpoint for the most pronounced pace of tightening in many decades. The good news of the economy Recovery from the Pandemic has been bad news for markets, unleashing unexpectedly high inflation in the U.S. and around-the-world.

But surprising many, on recent data and the near-term data to-come, the U.S. economy does look pretty good, o.k., slowing a lot from a Boomy Expansion, Post-Pandemic, and hugely stimulative monetary and fiscal policies that were applied in 2020-21.

The economy has stayed resilient and has picked up the pace in this second half as it enters 2023.

The latest track on Real GDP growth is 3%-to-4% in Q4, led by Aggregate Consumption, outlays from the Government sector, and strong capital spending by business for selected technology-based investments.