- Citi's chief U.S. economist said the U.S. economy will head into recession in mid-2024.
- Although economic indicators look strong, as seen in the latest jobs report, there are signs of an economic slowdown.
- Credit card delinquency rates are also rising, and retail sales data shows a decline in activity.
The dream of a soft landing is over. Instead, Citi says the U.S. economy will head into recession in mid-2024.
“There's a very powerful and fascinating story about soft landings, and it's just not reflected in the data,” Andrew Hollenhorst, Citi's chief U.S. economist, said in an interview on CNBC.
On the surface, the data looks great. The economy is benefiting from historically low unemployment, strong consumer spending, and strong GDP growth.
But there's more going on with the numbers than meets the eye.
“The question is, do these forward-looking indicators indicate where we're going?” Hollenhorst said.
One place where the economy is showing weakness is in the labor market. January's jobs report was explosive, adding 353,000 jobs to the economy. But looking beneath the surface, Hollenhorst said, working hours have declined, the number of full-time workers has declined, and employment has stagnated in sectors such as the restaurant industry.
“What happens in the labor market is key to the economy,” Hollenhorst said. “If unemployment remains low, people will continue to spend and the economy will hold up.” But he said the unemployment rate is expected to start rising, which is “a sign of much more significant deterioration in the U.S. economy.” He added that it would be.
Hollenhorst also said that inflation remains too high. This week's Consumer Price Index data showed a stronger-than-expected rise in monthly inflation, causing stocks to fall on Tuesday.
Credit card delinquency rates are also rising. Top economist David Rosenberg said a consumer credit default cycle is already here, with one in 12 credit card holders behind on their payments.
“While some consumers may have surplus savings, consumers who are currently exposed to high-interest variable credit card debt are drawing down those surplus savings and continuing to spend. We're seeing an increase in delinquencies,''' Hollenhorst said.
And consumer weakness is reflected in retail sales. Thursday's announcement showed a significant drop in activity, with January down 0.8%.
Hollenhorst is not alone in his pessimism. Thorsten Slok of Apollo Management recently echoed this view, saying a soft landing is currently the “least likely” scenario.