In a recent commentary, Torsten Sløk, chief economist at Apollo Global Management, emphasized a vital message: the U.S. economy is gaining strength, not faltering. Sløk pointed out that forecasts predicting an imminent slowdown have repeatedly proven incorrect, urging economists to confront their misjudgments. The consensus has suggested a slowdown for nine consecutive months, but the reality contradicts these predictions.
Current Economic Growth Trends
The U.S. economy experienced a remarkable growth rate of 3.8% in the second quarter, despite ongoing efforts by the Federal Reserve to control inflation. Projections for the third quarter are even more optimistic, with the Atlanta Fed’s GDPNow predicting a growth rate of 3.9%.
- Second-quarter GDP growth: 3.8% annualized rate
- Third-quarter GDP forecast: 3.9% by Atlanta Fed
- Resilience in consumer spending and business investment in sectors like AI and manufacturing
Contrary to expectations that high interest rates would hinder growth, consumer spending has been robust. Additionally, business investments have surged in areas linked to artificial intelligence and energy infrastructure.
Insights on Employment and Economic Conditions
While there are concerns about slower job growth, Sløk attributed this trend to reduced immigration rather than economic weakness. He emphasized the economy’s remarkable resilience, stating, “It is becoming increasingly difficult to argue that we are still waiting for the delayed negative effects of past events.” This perspective aligns with the views of Mike Wilson, chief U.S. equity strategist at Morgan Stanley, who describes the economy’s current phase as a “rolling recovery.”
Wilson suggests that the economy has endured recession-like conditions since 2022. He believes that conventional metrics such as GDP and unemployment might not capture the underlying struggles faced across various sectors.
Market Implications and Future Outlook
The differing outlooks from analysts have significant implications for investors. If Sløk is correct, the strengthening economy could lead to increased inflation risks due to robust growth paired with a looser monetary policy. Sløk cautioned that if the Federal Reserve continues to lower interest rates, inflation pressures may re-emerge.
- Core inflation: Eased from 2022 levels but could rise with economic strengthening
- Investor sentiment: Steers towards a bullish market outlook based on growth signals
During September, the Federal Reserve executed its first interest rate reduction in years, displaying confidence in stabilizing inflation. Sløk indicated that key economic indicators suggest a positive trajectory, even questioning whether the upcoming jobs report’s consensus of 50,000 payrolls is overly pessimistic.
Sløk’s remarks underscore a crucial reality for the economic forecasting community: by continually anticipating weakness that has not transpired, economists risk damaging their credibility. As the economy continues to show unexpected resilience, understanding these dynamics becomes essential for policymakers and investors alike.
