Macro Briefing: 5 July 2022

* Macro outlook remains uncertain due to Ukraine war and inflation risks
* China economic activity rebounds sharply in June via PMI survey data
* Eurozone still posting modest economic growth in June via PMI survey data
* Germany reports first trade deficit in over 30 years
* Euro at 20-year low vs. US dollar as Eurozone recession risk rises
* Slower but still healthy growth expected for US payrolls in June

Can the US fall into recession if the labor market remains strong? “The US economy has experienced 12 recessions since World War II, and each one included two features: Economic output contracted and unemployment rose,” notes Jon Hilsenrath at The Wall Street Journal. “Today, something highly unusual is happening. Economic output fell in the first quarter and signs suggest it did so again in the second. Yet the job market showed little sign of faltering during the first half of the year. The jobless rate fell from 4% last December to 3.6% in May.”

US recession odds rise to 38%, according to Bloomberg Economics model. “The probability model, which incorporates a variety of factors ranging from housing permits and consumer survey data to the gap between 10-year and 3-month Treasury yields, is now flashing a 38% probability of a recession over the next 12 months. That’s up from around 0% just a few months before,” Bloomberg reports. Anna Wong, chief US economist at Bloomberg Economics, says: ‘The risk of a self-fulfilling recession—and one that can happen as soon as early next year—is higher than before. Even though household and business balance sheets are strong, worries about the future could cause consumers to pull back, which in turn would lead businesses to hire and invest less.'”

Correction in US housing prices on the horizon, forecasts Moody’s Analytics Mark Zandi. The rise in mortgage rates is a key factor, he says. “If [mortgage rates] stay around six percent I think that the market will adjust and we’ll eventually get that correction. If it goes much higher than that we’ll get a more significant pullback in the housing market.”