Introduction

The U.S. economy has undergone a transition from a “rolling recession” to a “rolling recovery,” as stated by market veteran Ed Yardeni. Despite the Federal Reserve’s monetary tightening, which includes multiple interest rate hikes, the U.S. economy has managed to avoid a recession. Instead, different industries have been affected at various times since early last year.

Effects on Housing and Manufacturing

One of the noticeable impacts has been on the housing sector, which traditionally takes the hardest hit from rising interest rates. Goods and manufacturing industries have also been feeling the pain. While consumers initially purchased a significant amount of goods following the pandemic lockdowns, they have since shifted their focus to buying services, leading to a decline in demand for goods.

However, Yardeni suggests that these severely impacted sectors are now showing signs of recovery. In May, there was a sharp rise in new home sales and single-family housing starts, indicating the start of the housing sector’s recovery. Yardeni believes that the strong demand for housing, combined with a shortage of inventory, could help end the housing recession, even if mortgage interest rates remain high.

Unique Factors Influencing the U.S. Economy

Yardeni also dismissed concerns about a recession caused by a downturn in commercial real estate, stating that the sector alone is not big enough to bring down the entire economy. However, there is an expected recession in the commercial real estate sector over the next one to two years, as it adjusts to higher borrowing costs and lower occupancy rates due to remote working trends.

One unique factor influencing the U.S. economy is the large-scale fiscal stimulus, such as the Inflation Reduction Act. According to Yardeni, this massive spending on infrastructure and efforts to bring manufacturing back to the U.S. are counterbalancing other weaknesses and ultimately boosting the economy.

Recovery Forecast and Conclusion

Yardeni has doubled his growth forecast for the second quarter, indicating a strong recovery. He forecasts a 2.0% real GDP growth in both Q3 and Q4. Yardeni estimates a 75% chance of a soft landing, subject to change based on the actions of the Federal Reserve and the movement of inflation. Previously, Yardeni had predicted a soft landing for the economy and a boost to stock markets in 2023.