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Something for your Espresso: Is the US cycle lagging?

The weak ISM Services printout in the US raises the question of whether we can compare the current US cycle to developments seen in higher-beta countries in 2023 due to lags in the interest rate cycle.
2024-07-04

Morning from Europe.

The ISM Services report suggests a recessionary trend, with the new orders index showing levels consistent with a contraction in the services industry.

This has obviously reignited the discussion on whether the US economy is heading for a recession. While there is potentially some merit to that stance, we also see underlying pro-cyclical trends outside of the US, and even in some early indicators within the US, which makes us less concerned about that recessionary scenario.

There is a point to be made in accepting that the US business cycle lags behind that of countries like Sweden, Canada, and the Eurozone in this cycle due to differences in the maturity/duration profiles of local debt markets. The bankruptcy cycle is still accelerating in the US, while we are clearly past the peak in some of the higher-beta countries.

We have seen how the cycle has improved in Canada and Sweden swiftly this year as their local central banks have moved towards rate cuts, while the cycle is more stubborn and slower-moving in the US. This potentially also means that the US cycle will re-accelerate quite clearly towards the end of 2024 according to typical leads/lag, especially if the Fed delivers an insurance cut or two.

Chart 1a: Filings in the US

The weak ISM Services printout in the US raises the question of whether we can compare the current US cycle to developments seen in higher-beta countries in 2023 due to lags in the interest rate cycle.

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