Recessions are a recurring theme in US economy, surfacing roughly every five years since World War II. Although they typically last just over 11 months, their impacts are profound. As we approach end of 2024, signs suggest that another economic downturn is imminent, with dire predictions for 2025. According to BCA Research, S&P 500 could plunge by 32%, driven by rising unemployment, constrained credit, and consumer spending cutbacks.
US Economy on Brink of Recession – A Storm Looms Ahead
Peter Berezin, Chief Global Strategist at BCA Research, has sounded alarm. He predicts a recession will hit US economy either later this year or early next year, sending S&P 500 tumbling to 3,750. Berezin’s outlook challenges consensus of a “soft landing” and highlights Fed’s delayed response in cutting interest rates as a critical factor. “consensus soft-landing narrative is wrong. US will fall into a recession in late 2024 or early 2025. Growth in rest of world will also slow sharply,” Berezin said in a recent note.
Berezin points to a weakening labor market, with job openings significantly declining from their post-pandemic peak. Additionally, quits rate, hiring rate, and recent downward revisions to April and May jobs reports indicate a slowing labor market. June jobs report further underscores this trend, with unemployment rate ticking up to 4.1% from 4.0%. Berezin remarks, “Two years ago, workers who lost their jobs could simply walk across street to find new work. That has become increasingly difficult.”
Rising unemployment is expected to prompt consumers to reduce their spending to build “precautionary savings,” especially as borrowing becomes more challenging due to rising delinquency rates. This shift in consumer behavior could trigger a negative feedback loop, further depressing economy. “With little accumulated savings to draw on and credit availability becoming more constrained, many households will have little choice but to curb spending. Decreased spending will lead to less hiring. Rising unemployment will curb income growth, leading to less spending and even higher unemployment,” Berezin explains.
Federal Reserve’s strategy to mitigate economic decline through interest rate cuts may prove ineffective. Berezin stresses, “It is important to recognize that what matters for economy is not fed funds rate per se, but interest rate that households and businesses actually pay.”
Economic Indicators and Predictions
| Indicator | Current | Predicted 2025 |
|---|---|---|
| S&P 500 | 5,600 | 3,750 (-32%) |
| Unemployment Rate | 4.1% | Rising |
| Consumer Spending | Stable | Decreasing |
| Interest Rates (Fed Funds) | High | Delayed Cuts |
For further details, you can read more on BCA Research’s analysis and Fox Business.
looming recession brings to mind Great Depression of 1929-1939, which devastated economies worldwide. While not expected to reach those levels, potential for widespread economic pain is significant. As Fed grapples with its delayed response, US economy faces a challenging road ahead.
As we brace for potential economic turbulence, it’s crucial to stay informed and prepared for impacts that a recession could bring.