Is the economy about to tip into recession?
But in an email on Tuesday, Deutsche Bank economist Torsten Sløk wrote that despite the incessant drumbeat from clients about an economy doing worse than people are willing to acknowledge, the exact opposite is in fact true: Things are way better than people recognize.
“In client meetings I frequently hear statements such as ‘the US economy is weak,’ and ‘there are too many problems for the Fed to hike rates’ and ‘things are not getting better,'” Sløk writes.
“Let’s take a look at the data: The chart below shows that lower income groups are currently close to all-time highs when it comes to optimism about the future. Think about this statistic next time someone talks to you about the declining participation rate, the lack of wage growth, and QE4. This is not an economy that is about to enter recession.”
- Deutsche Bank
Sløk is driving at the point that nothing is more important than the US consumer.
Consumer spending accounts for about two-thirds of gross domestic product, and the consumers most likely to change their behavior because of an increase in their income or simply a more upbeat view of their future prospects are folks in the lowest income bracket.
Overall readings on consumer confidence are near cycle highs, but the details of these reports are even more encouraging. “In my view, there is a big disconnect between the current narrative in both equity and rates markets and the actual economic data,” Sløk writes.
“This economy is stronger than its reputation and for some reason many investors want to hold onto the 2009 story of ‘the economy is not good.'”