The demand for goods and services in the U.S. economy has suffered in recent weeks, S&P economist Chris Williamson said while raising concerns about the country slipping into recession.
“Having enjoyed a mini-boom from consumers returning after the relaxation of pandemic restrictions, many services firms are now seeing households increasingly struggle with the rising cost of living, with producers of non-essential goods seeing a similar drop in orders. There has consequently been a remarkable drop in demand for goods and services during June compared to prior months,” Williamson said.
Rising living costs and the drop in demand have left businesses “much more concerned” about the economic outlook. The “increasingly aggressive interest rate path” outlined by the U.S. Federal Reserve and the “concomitant deterioration” in the broader financial conditions are also weighing down on businesses, the economist stated.
In addition, business confidence has fallen to a level that would “typically herald an economic downturn,” thus adding to the risk of a recession, Williamson warned. Though price pressures have “peaked,” they continue to remain elevated, he added.
The headline Flash US PMI Composite Output Index for June came in at 51.2, down from 53.6 in May. The U.S. Services Business Activity Index fell to 51.6 from 53.4 while the U.S. Manufacturing PMI fell to 52.4 from 57 during this period.
Probability of RecessionDuring his testimony in Congress on June 22, Federal Reserve Chair Jerome Powell said that the central bank is determined to keep raising interest rates until inflation cools down while also acknowledging that the U.S. economy slipping into a recession is “certainly a possibility.”
The Fed has raised its benchmark interest rate by 75 basis points this month, the highest jump since 1994. Markets are also expecting a similar rate hike during the Fed's July meeting.