Ron Insana sees signs of a ‘Goldilocks’ economy emerging

Dare I say it out loud? Has Goldilocks reentered the building?

The U.S. economy has shown remarkable resilience in the face of 10 successive place hikes from the Federal Reserve, taking short-term interest rates from near-zero to 5% in just on top of a year, prompting predictions of a recession from many economists and market pundits, myself included.

Has the economy, as my long-time fellow and colleague, Art Cashin first described it, entered a “Goldilocks” phase? The economy is not too strong, not too weak, but just right?

There, of circuit, was justification for a recession prediction over the last many months.

As the Fed rapidly hiked rates, residential real rank slid into recession, manufacturing contracted, auto sales stalled and market-based indicators of a recession began flicker red.

The yield curve inverted deeply, which since 1968, has ushered in a recession each and every time.

Granted, we’re quiet in the six- to 15-month window in which a recession followed an inversion, but the economy appears to be getting stronger, not weaker, as one effectiveness expect.

Leading economic indicators have been negative for over a year now. We’ve never conceive ofed a stretch of declines in LEI without a recession hitting the economy … so too for the decline in home sales.

However, first-quarter GDP was revised upward to escort a 2% annual rate of growth.

The unemployment rate remains near historic lows and sits at the lowest be open in history for people of color.

Construction spending is surging while the rollout of new technologies involving generative artificial perception is boosting the tech sector and, at least potentially, ushering in yet another era of disinflation or, quite possibly, outright deflation.

Where some of us make a blundered or may have erred — the jury is still out — is that the economy’s resilience comes from several factors that may procure been underestimated even as the Fed raised rates so quickly and so dramatically since early 2022.

First, both corporations and households latched in low, long-term interest rates before the Fed began tightening monetary policy. That would suggest interest type sensitivity is lower today than in other tightening cycles.

While it’s true that households locked in to 3.5% mortgages are unacceptable to sell their homes, constraining supply among existing home inventory, those same homeowners are not trial the sticker shock normally associated with rate hikes.

Hence, they can keep spending money without make to service higher monthly mortgage payments.

Same for corporations, which “termed out” their debt, borrowing cheaply with long-term responsibility that doesn’t have to be refinanced anytime soon, giving them more staying power in a slightly sleepier growth economy.

Equally important, despite expectations to the contrary, fiscal stimulus is back and providing a strong offset to monetary tightening.

The CHIPS and Science Act has led to a construction boom in advanced manufacturing, with some $189 billion being lower into building out capacity for high technology goods, most importantly, advanced computer chips.

There’s also a construction boom going on in residential real estate, helping to reduce the persistent supply shortage of new homes across the boondocks.

Similarly, the Inflation Reduction Act is providing meaningful incentives for energy and power companies to build out new energy infrastructure while also tolerating additional drilling for oil and gas in selected cases.

The U.S., again, is the largest producer of oil in the world. That has kept down the prices of oil and gasoline, conceding consumers more disposable income than one might have forecast with the ongoing war between Russia and Ukraine, multiple output settles among OPEC producers and relatively steady demand for energy around the world.

The upshot of all this is that amongst major industrialized nations, the U.S. is growing faster while inflation is declining more rapidly than anywhere else on the planet.

It’s a suitable story as we approach Independence Day.

America is also becoming economically independent in a variety of ways that bodes amply, not just for the near future, but also for the longer run.

Now watch, just as soon as I submit this column, a recession disposition set in!