“When we look at what’s happening with the consumer, which is the backbone of the US economy, we are seeing a clear loss of momentum,” Lindsey Piegza, chief economist at Stifel Nicolaus & Co. Read more: US Recession Call Trickier Than Ever as Mixed Signals Abound Another gauge of underlying demand – sales to domestic buyers, after adjustment for inflation – increased just 0.8%. That rose 2.1% in the fourth quarter, less than economists had expected. It should be positive for risk assets.”īut recession-watchers latched on to a key set of numbers in Thursday’s report: the ones that focus on personal consumption, by far the most important driver of the US economy. “They call this the ‘Goldilocks’ scenario. “The economy is slowing, but the above-forecast number will ease recession fears at the same time,” said Fawad Razaqzada, a market analyst at City Index. Stock markets rallied after the GDP data, with some analysts talking up the prospect of the Fed nailing its soft landing. Read More: US Economy Shows Slowdown Signs After Growing 2.9% Last Quarter A separate report on labor markets published Thursday also pointed to a resilient economy, rather than one on the verge of a slump, with weekly jobless claims unexpectedly falling.įor the Fed, which has hiked interest rates at the steepest pace in a generation over the past year, the data suggest that there’s still a path to what’s known as a “soft landing.” That’s a scenario in which tighter monetary policy cools household spending and lowers inflation – but avoids squeezing the economy so hard that it ignites mass layoffs nationwide. Gross domestic product rose at a 2.9% annualized pace, down from 3.2% in the third quarter. The girl’s hair might glitter like spun-gold, but it will never shine as brightly as genuine gold.(Bloomberg) - The US economy beat expectations in the last quarter of 2022, posting the kind of mild slowdown that the Federal Reserve wants to see as it attempts to tame inflation without choking off growth.Įconomists who dug into the details, though, saw enough warning signs – especially in weakening demand among American consumers – to suggest that a recession remains a big risk this year. At some point, the bears return home, while the Goldilocks runs away. One day, some political or economic shock will happen and disturb the delicate balance of the Goldilocks economy (after all, the 1990s boom ended with the dotcom bubble, which triggered the bull market in the gold market). However, gold bulls should not forget that all fairy tales have a happy ending. Indeed, in the 1990s, gold entered the bear market. Hence, the combination of low inflation and moderate growth is not particularly encouraging outlook for gold investment. After all, gold is a hedge against inflation and a safe-haven asset which shines the most during periods of either high inflation or deep recessions. Goldilocks Economy and Goldīut what about gold performance in the Goldilocks economy? Although the former includes “gold” in its name, it is not supportive to the yellow metal. This usually coincides with investors willing to pay more for the income the shares generate as evidenced by a growing P/E ratio. ![]() In a beneficial macroeconomic environment however, companies grow, generate positive cash flow, earnings are on a growth trajectory, so the stock market performs well. Remember, no bull market dies of old age – the Fed has killed every one of them through monetary tightening. Stock market investors love the Goldilocks economy as it allows a market-friendly monetary policy, or it does not create reasons for the Fed to intervene and change its course. So, just as the porridge of the Little, Small Bear, whose temperate was adequate, the goldilocks economy is the economy which is neither too hot, generating inflation, nor too cold, creating recession, but just right. As one can see in the chart below, the two most famous and the longest periods of the Goldilocks economy occurred in the 1990s and in the 2010s.Ĭhart 1: Real GDP growth (red line, % change yoy) and inflation (green line, CPI, % change yoy) from Q1 1970 to Q4 2018 What is actually the Goldilocks economy? It is an economy which combines a moderate GDP growth and low inflation. The reason is, of course, the Goldilocks economy we still have, to the despair of gold bulls. Now, you might wonder why we refer to the story for children in the dictionary for terms related to the precious metals investing. ![]() For sure, you have – Goldilocks and the Three Bears is one of the most popular fairy tales in the Western world. We guess that you have heard the whole story. Once upon a time, a little girl called Goldilocks came to a house of Three Bears.
0 Comments
Leave a Reply. |