We are starting to get more worried at work and my bosses are constantly talking about it. How screwed is the US economy ?
Also what happens when you have a recession in a tight labor market like most places are short staffed so what do they do because I do not feel like they can fire people to save money this time.
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The US economy is actually permanently fucked. No more rebounding back. The USD dropped as a reserve currency almost 60%, while the RMB rose 440% in the last 5 years.
The US is literally being overtaken by China as we speak at a breakneck pace. China's GDP grew by 4.8% in Q1 while US GDP contracted 1.3%.
I forecast a recession for a few reasons, the first of which is inflation. As of March '22, inflation has notched 8.5%, and is expected to grow despite the increases in interest rates by the Fed. This is due to producer's price index (PPI) which "leads" the consumer price index (CPI). Right now, PPI is roughly 11.5%, and companies have the ability to pass along those expenses to the consumer.
Increasing interest rates are also a source of concern - right now, Powell has instigated a 25bp increase, and confirmed a 50bp increase as well. If the Fed doesn't act quickly enough, inflation will claw its way into the service sector and become a much bigger issue than it is right now, and if they act too quickly it could send the U.S. into a recession. If this is the case, it is forecasted the U.S. will have a 52% chance of recession in the next year.
This is also under the backdrop of consumer spending (and correlated, consumer confidence) that while increased nominally, actually decreased in Q1-22 when adjusted for inflation. Consumer confidence continues to drop, and I believe where it is right now is where it was in April of 2020.
IMO it seems that investment bankers are still extremely busy this year, but I would assert it is not unlikely for the deal pipeline to dry up significantly, if these things persist.
I think consumer confidence may take massive hit for reasons of people not knowing how much debt they are adding on. Credit Card debt rose significantly it can go up only so much more for the average person before they hit there limit and can hardly pay the minimums. I live in a low cost of living area on most people I know where are on the lower side income wise just put everything on there credit cards. I think a lot of it is them truly not understanding how much they are spending and when they hit that wall consumer confidence might fall off a cliff.
The economy is a problem, but markets are a bigger problem. Prior to this sell-off, equities have never been more expensive. Fed policies have resulted in the most massive misallocation of capital of all time, with record flows into risk assets and privates. One of the few times where private equities largely more expensive than public. Markets still 20-30% overpriced. Guessing will be tough for IB revenue and comp, but hopefully isn’t a disaster. Q1 IB revenue down 35-40%, hopefully pipelines come through, but the deal calendar is very soft at the moment. Higher rates and risk premiums should result in better deal economics, but fewer deals.
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