A persistent period of below-trend growth in the U.S. economy is raising concerns about a potential recession, according to a note from Macquarie on Tuesday.
While there has been a recent shift in sentiment from recession fears to optimism due to better-than-expected economic data, the investment firm warns that this optimism may be premature.
Macquarie analysts suggest that the U.S. economy is experiencing "a stubborn bout of below-trend growth induced by tight monetary policy, credit constraints, and the depletion of pandemic-era excess saving."
They state that while the economy appears resilient for now, it remains vulnerable to a recession if a financial shock occurs.
The mixed signals from the economy are said to be evident in recent market reactions.
Macquarie explains that poor economic data in July and early August initially sparked fears of an imminent recession, leading to a drop in stocks and U.S. Treasury yields.
However, better data since August 5th has revived confidence, with the U.S. economy once again appearing sturdy and resilient.
Despite this, Macquarie believes a "middle view" makes more sense. This is where the U.S. would continue to face below-trend growth without tipping into a full-blown recession unless a financial shock emerges.
They note that this sluggish growth pattern is typical following a period of sustained monetary tightening.
The note highlights that the services sector, which showed some recovery in July, remains fragile. The ISM Services Index, a key economic indicator, points to a loss of momentum, reminiscent of patterns seen before the 2001 and 2007 recessions.
Macquarie concludes that the economy's path forward will depend heavily on the Federal Reserve's actions and the potential for external shocks, which could either stabilize growth or tip the economy into a downturn.