The incoming activity data now show clearer signs of weakness, particularly in the most interest-rate sensitive components of spending. But there are still few signs of that moderation morphing into a recession. The rise in mortgage rates has weighed on mortgage demand and is now reflected in weaker housing activity, with housing starts falling back over the past few months. The latest survey measures of firms’ capex plans suggest that growth in business equipment investment has slowed sharply. But with easing shortages set to support spending on autos and help firms rebuild inventories, and lower inflation likely to mean that real incomes begin rising before long, we still think the economy will avoid a recession in the coming quarters.
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