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U.S. recession looks likely — and there are 3 ways the economy could get hit, analyst says – CNBC

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Rising gas prices are piling pressure on the U.S. economy.
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The odds of the U.S. economy falling into recession by next year are greater than 50%, Richard Kelly, head of global strategy at TD Securities, said Monday, outlining three possible ways it could get hit.

Rising gas prices combined with a hawkish Federal Reserve and a generally slowing economy are among the tripartite risks facing the world’s largest economy right now, according to Kelly.

Could that raise the possibility of a recession? “I don’t think it’s a potential,” he told CNBC’s “Street Signs Europe.”

“The odds of a recession in the next 18 months are greater than 50%,” Kelly added.

Exactly when that downturn might hit is harder to predict, however.

Kelly said the economy could slip into a technical recession — defined as two consecutive quarters of negative growth — as soon as the end of the second quarter of 2022. Analysts will be closely watching the Bureau of Economic Analysis on July 28 for early estimates on that.

Alternatively, the fallout from surging gas prices following Russia’s unprovoked invasion of Ukraine and the Fed’s continued interest rate hikes could both weigh on the economy by the end of the year or into early 2023, he said.

And if the U.S. manages to weather all of that, a general slowdown could take the wind out of the economy’s sails but mid- to late-2023.

“You really have three shots at a recession right now in the U.S. economy,” said Kelly.

“We haven’t even hit the peak lags from gas prices, and Fed hikes really won’t hit until the end of this year. That’s where the peak drag is in the economy. I think that’s where the near-term risk for a U.S. recession sits right now,” he continued.

“Then, if you get past that, there’s the overall gradual slowing as we get into probably the middle or back half of 2023.”

Investment firm Muzinich agreed Monday that a forthcoming recession was not a matter of “if” but “when.”

“There will be a recession at some point,” Tatjana Greil-Castro, co-head of public markets, told CNBC, noting that the forthcoming earnings season could provide a gauge for when exactly that might occur.

“Where earnings are coming in is for investors to establish when the recession is likely to happen.”

The comments add to a chorus of voices who have suggested that the economy could be on the cusp of a recession.

David Roche, veteran investment strategist and president of Independent Strategy, said Monday that the global economic outlook had recently shifted, and it had now become easier to assess how different parts of the world might respond to various pressures.

“You can now make detailed prognosis for different parts of the world which are themselves very different from the simply blanket recession picture,” he said.

Roche said he considered a recession the loss of 2-3% of jobs in a given economy, suggesting that a U.S recession may be some way off. Data published Friday by the Bureau of Labor Statistics showed stronger-than-expected jobs growth, with nonfarm payrolls increasing by 372,000 in the month of June, well ahead of the 250,000 expected.

However, he noted — not for the first time — that Europe is on the brink of what he calls a “war-cession,” with the fallout from the war in Ukraine piling economic pressure on the region, particularly as it pertains to energy and food shortages.

“Europe may be hit by an energy crisis all of its own which produces the war-cession. The recession caused by war,” he said.

It comes as Nord Stream 1, the primary pipeline supplying natural gas to Europe from Russia, is shut down this week for maintenance, raising concerns that it could be turned off indefinitely due to ongoing disputes over Ukraine sanctions.

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

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OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

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OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

The Canadian Press. All rights reserved.

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Economy

Statistics Canada says manufacturing sales fell 1.3% to $69.4B in August

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OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.

The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.

The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.

Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.

Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.

Overall manufacturing sales in constant dollars fell 0.8 per cent in August.

This report by The Canadian Press was first published Oct. 16, 2024.

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