October 17, 2023
In the wake of unprecedented monetary tightening, the U.S. economy’s resilience has surprised many. As a result, 2023 consensus estimates for growth in the U.S. have been on the rise. Meanwhile growth estimates for other countries have flatlined or declined, suggesting a more challenging economic backdrop.
Since July, U.S. growth estimates have increased 0.8% to 2.1%. The main catalyst has been the resiliency of the U.S. consumer. A combination of strong job gains and steady wage growth has allowed consumers to continue spending despite higher rates. Additionally, balance sheets are stronger than they have been in past tightening cycles, as corporations remain well positioned following more than a decade of near-zero interest rates, and household savings are ample as a result of past government stimulus.
In contrast, the Eurozone’s growth estimate has been modestly lowered and Germany, its largest economy, is already in recession. China’s weaker-than-expected reopening, diminished consumer confidence and a troubled real estate sector have pushed its near-term growth estimates lower as well.
We expect the lagged effects of the Fed’s aggressive tightening to lead to weaker growth in the coming quarters without pushing the U.S. economy into a recession. The resiliency of the economy bodes well for corporate earnings as we head into 2024, which is why we continue to favor the U.S., and large cap stocks in particular, within our neutral equity positioning.
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