Macquarie Warns of Rising U.S. Recession Risk

Investing.com — Without Federal Reserve rate cuts, a U.S. recession would be much likelier, analysts at Macquarie warned in a Wednesday note, flagging the growing signs of labor market weakness seen in the most recent consumer confidence report.

“We’re not saying that a recession is coming, but absent Fed rate cuts that will take place, a recession would be much likelier,” the analysts said, pointing to “worrisome” signs of labor market weakness seen in the Conference Board’s consumer sentiment report released Tuesday.

Respondents reporting that jobs are plentiful fell to 32.8% from 33.4%, while those reporting jobs as hard to get rose to 16.4%. This “spread,” which closely tracks the unemployment rate, Macquarie notes, is now at its widest since March 2021, when unemployment was at 6.1%.

The analysts also flagged other indicators, including a decline in the hiring rate and the quits rate to levels last seen during 2015-2017 when unemployment ranged between 4.3% and 4.9%.

Signs of weakness in the labor market are expected to be reflected in the August employment report, due September 6, Macquarie stated, which could show a higher unemployment rate, possibly reaching 4.5%.

Concerns about the labor market outlook have ramped up bets on aggressive Fed rate cuts, with traders in swaps markets pricing in 99 basis points of Fed rate cuts between now and year-end.

This outlook contrasts with the European Central Bank’s stance, which remains less dovish because of its single mandate of controlling inflation.

This divergence in central bank approaches has contributed to recent dollar weakness, with the euro and pound rallying against the greenback. However, Macquarie argues that this trend may be running out of road, citing potential political uncertainties in Europe and the UK.