Markets risk turning overoptimistic on underlying trends: Fiscal support is turning negative, consumer spending is running on fumes as savings rates run well below, and pre-pandemic norms diffusion indices are pointing to a renewed rise in unemployment rates.
Non-farm employment diffusion indices, share of industries reporting growth (unchanged cut by half)
As the lagged effects of monetary tightening become increasingly evident in rate-sensitive sectors, we expect recessionary headwinds to grow stronger, culminating in a downturn beginning before June 2024. Warning signs should multiply in the coming months, with economic surprise differentials narrowing against the US.
GDP-weighted economic surprise indices