This strange recession in the United States that the stock market likes, Market News

This Thursday at the Paris Stock Exchange, the day the US GDP for the second quarter is released, Bedroom 40 rose 1.3% to close at 6,339.21 despite poor results from heavyweights like Airbus and TotalEnergies, which are among the many companies that released their second quarter earnings between last night and this morning ahead of the open .

The Paris index, after an indecisive morning to say the least, found, contrary to all apparent logic, a revival after the announcement at 2:30 p.m. of an “unexpected” contraction in US GDP in the months since April. to June (-0.9% qoq y/y), where the consensus was for a 0.4% increase. In truth, the surprise is not so great. If Bloomberg consensus economists were still predicting growth, then the GDPNow model of the Federal Reserve Bank of Atlanta, one of the regional branches of the American central bank, indicated a contraction in GDP.

Like others, economist Bruno Cavalier of the private bank Oddo BHF foresaw this contraction. At the beginning of the week, he recalled that “Real GDP has already fallen in the first quarter. By a common but dubious definition, the United States would have been in recession in the first half of the year… A curious recession in which employment, income, and spending continued to rise. The weakening of the US economy is undeniable, but until June it was not strong enough to cause a reversal in the labor market and, alas, reduce inflation. »

Contraction without a recession is what the stock market likes, especially after the Fed’s decision on monetary policy and statements from its president. After announcing a further 75 bps hike in US benchmark interest rates, the US central bank, through Jerome Powell, suggested last night that the bulk of monetary tightening had been carried out. “Jay” Powell said ” at some point it will be appropriate to slow down “. Discount rates are now in the range of 2.25-2.5%, and in his statements, the main US central banker made it clear that the latest Fed forecasts are June, which indicated that rates should be between 3% and 3. 5% by year-end – remained the best benchmark for US monetary policy, even if the inflation-watching Fed can’t help but be clear about what it will decide with confidence at its next meeting in September, by which time two new reports will be released on changes in the price index – for July and August.

Meanwhile, among the comments that have confused investors is the comment, which was in many reactions this morning, that the Fed is beginning to see signs of cooling in the US economy, and that is what it was trying to achieve by raising rates. to calm inflation while avoiding, as far as possible, the economy falling into recession, knowing, however, that the goal of the central bank is price stability, not economic growth. The stock market is beginning to think that if the Fed doesn’t go too far in raising rates, a recession – a real one that destroys jobs – can finally be avoided.

Unseen in over 70 years

Until today, every time since 1948 the US GDP has contracted two quarters in a row, it actually signaled a recession, as it was widely understood. But this time, despite the fact that wealth created in the first economy fell by 0.9% year-on-year in the second quarter, after -1.6% in the first three months of the year, the National Bureau of Economic Research (NBEI) officially will not announce the entry into a recession.

“The annual decline is disappointing, but does not mean that the economy is in recession. The decline is partly due to a huge drawdown in inventories, while most other concurring indicators, including employment, show continued growth.deciphered by economist Andrew Hunter of Capital Economics. However, the details show that higher rates and runaway inflation are taking a toll on underlying demand, and we expect only a modest GDP recovery in the second half of the year. »

“The NBER would be a laughing stock if it claims we are in a recession when we are creating 400,000 jobs a month.”Dean Baker, co-founder of the Center for Economic and Policy Research, poked fun at the American financial television channel CNBC earlier in the week. “I can’t even imagine that they would even think for a second that we are in a recession. »

During the first six months of the year, the United States created an average of 457,000 non-farm jobs per month, a dynamic that is difficult to attribute to the economic downturn. In addition, there are 11.3 million unfilled vacancies for a total of 5.9 million existing workers.