Société Générale’s chief global strategist Albert Edwards has raised concerns about the prevailing economic sentiment, likening it to the precarious conditions of 2007 as most forecasters abandon their recession predictions.

Indicators of Impending Downturn

Despite seemingly robust GDP and job growth figures, underlying indicators suggest a different story. The Chicago Fed’s National Activity Index reveals subpar economic growth of below 1% for the past six months, indicating a potential downturn.

Furthermore, waning confidence among employees, particularly high earners, in securing new jobs adds to the gloomy outlook. According to the New York Fed’s Survey of Consumer Expectations, workers estimate a mere 52% chance of finding new employment within three months of losing their current job.

Labor Market Woes

The labor market’s prolonged flat growth, as indicated by household employment surveys from the National Federation of Independent Business, raises red flags. This stagnant trend hints at impending trouble, risking the collapse of the perception of a strong US economy.

Contrasting Views

While Edwards and a few others maintain their recession warnings, a majority of market commentators have shifted away from such predictions. The National Association of Business Economics survey reveals that 91% of economists believe the likelihood of a downturn in the next year is less than 50%. Even notorious pessimists like economist Nouriel Roubini have tempered their forecasts.

Echoes of 2007

Edwards draws parallels between the current environment and the conditions preceding the 2007 financial crisis. Despite some positive economic indicators, fragility lurks beneath the surface, reminiscent of the period preceding the Great Financial Crisis.

Market Expectations and Investor Sentiment

Market expectations of Fed rate cuts signal a growing anticipation of a soft landing. With investors pricing in a 42% chance of rate cuts exceeding 100 basis points this year, optimism persists despite inflationary concerns. Additionally, over 50% of investors express bullish sentiment towards stocks over the next six months, according to the AAII’s Investor Sentiment Survey.

As the economic landscape evolves, vigilance and cautious optimism remain essential in navigating potential risks and opportunities.