Week Ahead Preview: GDP to Show if the US is Headed for Recession
- John Choong
- Nov 25, 2024
- 4 min read
Updated: Nov 29, 2024
In a week of light UK data, the focus shifts to the US, where inflation and GDP data are due to see if the US is sliding into a recession.
More Clarity from Lombardelli
The UK will have one of its lighter weeks of macroeconomic data releases this week. With nothing much going on in the middle of the week, Monday morning will see two Monetary Policy Committee (MPC) members speak in London, in the form of Swati Dhingra and Clare Lombardelli.
Dhingra's stance to call for further rate cuts have been made clear from the get go, so there will be no surprises there unless she shifts her tone to align with her colleagues' 'gradual' approach to rate cuts. Thus, investors should pay more of a closer ear to Lombardelli's speech, given her position as a swing voter.
The Deputy Governor testified to the Treasury Select Committee last week, but this came before the hotter-than-forecast inflation data on Wednesday. And whilst she mentioned that inflation risks are 'broadly balanced', she also followed up by saying that she's also little bit more concerned about the upside risks to inflation. Therefore, further clarification on her stance post-inflation data could solidify how the MPC ends up voting next month.
Housing Worries
On Friday, mortgage approvals data will be due for October. Contrary to consensus (attached below), we expect the Budget's jitters and the recent upticks in mortgage rates to impact sentiment, resulting in a slight drop in mortgage approvals in Q4 vs Q3. Hence, we see house price growth to cool this winter and ending the year at 3% .
Lloyds's business confidence barometer is also due. Here, we anticipate firms to express their intentions to charge higher prices on the back of the rise in national insurance contributions, which won't bode well for inflation expectations moving forward, giving the MPC another headache to contend with.
Recession Risk?
On the other side of the pond, all eyes will be on the US's second estimate of Gross Domestic Product (GDP) growth in Q3. Initial estimates had put Q3 growth at a robust 2.8%. As such, a weaker-than-anticipated print could ring alarm bells that the US economy could be headed for a recession. This may swing the pendulum in favour of a December rate cut from the Federal Reserve, with the odds of a December rate cut at c.50% as of Monday morning.
Wall Street (a consensus of large US investment banks) currently see the odds of a US recession happening in 2025 at a mere 15%. And with most, if not all, major banks still seeing less than a 50% chance of a recession in Trump's first year in office, it's unlikely stocks will underperform next year.
To back this up, the latest Purchasing Managers Index (PMI) figures suggest that a recession may not be around the corner. The survey of private sector firms which tends to gauge economic growth quite accurately, surprised to the upside in November (55.3 vs 54.1). This could indicate that any blip in Q3 may be down to pre-election conservatism rather than underlying economic weakness.
Tip: The PMI figures are a survey of business managers within the private sector to measure metrics such as activity, order books, prices charged, etc. A figure above 50 marks expansion from the month before, while a figure below marks contraction.
On the same day, the Personal Consumption Expenditure (PCE) － the Fed's preferred inflation gauge － is also due. Markets see an uptick to 2.2% from 2.1%, while core PCE is expected to remain stuck at 2.7% for the fourth consecutive month. If the data does surprise further to the upside, however, the likelihood of the Fed holding rates in December will likely rise above 50%, although that will also depend on the GDP data.
Personal income will also be closely watched. Markets are projecting another 0.3% rise again, from October. And given how recent trends have shown its positive relationship with inflation, it could add another layer of complexity to the US's inflation outlook. On the positive side, though, it would back the claim that the US is far from a recession, as earnings power continues to remain strong, albeit at the expense of having higher rates for longer.
Data Schedule and Consensus Estimates
Day | Event | Consensus | Previous |
MON | BoE Clare Lombardelli Speech | ||
MON | BoE Swati Dhingra Speech | ||
TUE | US FOMC Minutes | ||
WED | US GDP Growth Rate (Q3 - 2nd Estimate) | 2.8% | 3.0% (Q2) |
WED | US Headline PCE | 2.2% | 2.1% |
WED | US Core PCE | 2.7% | 2.7% |
WED | US Personal Income (M/M) | 0.3% | 0.3% |
WED | US Personal Spending (M/M) | 0.4% | 0.5% |
FRI | UK Mortgage Approvals | 65.8k | 65.7k |
FRI | UK Mortgage Lending | £2.70bn | £2.54bn |
FRI | UK Lloyds Business Confidence Barometer | 3.4% | 3.9% |
*Any forecasts and commentary are opinions and analyses based on available data at the time of publishing, which may prove incorrect. This content is for informational purposes only — please consult a qualified financial advisor for personalised investment advice.
