Purchasing Manager Surveys Show Expansion
Managers in both services and manufacturing anticipate a slowdown in business, yet still expect growth in spite of the headwinds from commodity markets and tight labor markets. In fact, both indexes are above 55—values above 50 indicate expansion. If firms are able to recalibrate running their business, we expect a rebound in growth the latter half of this year even though the first half might be sluggish.
Conclusion
Not all recessions are the same. Risks remain: the Fed could lose sight of its dual mandate or supply chains remain clogged from Eastern European wars and Asian lockdowns. Inflation could not cool as consumers pivot back from goods-centric spending (cars and washing machines) to services spending (hotels and airplane tickets). In spite of these risks, the metrics above suggest that the economy could escape a recession in the near term, with potential for nearly 3% growth this year.
On balance, we think the economy is steady enough to handle the current tightening cycle even if the Fed is coming late with its hawkish tones.
Jeffrey J. Roach, PhD, is chief economist at LPL Financial. Lawrence Gillum, CFA, is a fixed income strategist at LPL Financial.