Steel Summit 2024: Dr. Basu predicts near-term weakness in US economy

“The US economy, despite some near-term weakness I suggest in early 2025, is going to be strong,” Basu said on Tuesday, Aug. 27.

He said the reason is demographics. With the most populous generation, Millennials, approaching peak earning and spending years and they’re getting a lot of money from older generations.

“Based on those demographics, US demand for goods and services, especially from the consumer sector, can be quite strong,” Basu said.

“Macroeconomically, that should mean good things for steel, as well,” he added. “So, this infrastructure buildup is taking place. I think the commercial real estate markets, at least, the office work, will at some point stabilize and start to see more construction there.”

But Basu is more pessimistic about the short-term economy, suggesting a recession in early 2025.

One data point he noted was the Sahm Rule Recession Indicator, which signals the start of a recession when the three-month moving average of the national unemployment rate rises by 0.50 percentage points or more relative to the minimum of the 3MMAs of the previous 12 months.

The July jobs report showed unemployment rising 4.3%, triggering a Sahm reading of 0.53%.

“The Sahm rule has been a flawless predictor of recessions,” Basu said.

The economist also expressed concerns about the national debt and the future of social security and other social benefit programs.

“We’re completely abusing our nation’s finances,” Basu said.

He noted the trillions being spent through programs like the Infrastructure Investment and Jobs Act (IIJA) and the CHIPS act.

“If you look at federal government expenditures, you would think that we’re still in crisis, that Covid is still transpiring,” Basu said, noting that spending increased under both the Trump and Biden administrations.

“We spend now more on interest on the debt than we do on national defense,” he said.

The Federal Reserve has signaled that it would cut interest rates at its September meeting.

Basu said there could be two to three rate reductions this year, most likely in September and December.

“I don’t think there’ll be a rate cut in November – election time – but they could,” Basu said. “I want to say two rate cuts later this year, and they’ll cut every meeting through mid-year through the summer of next year. So, that’ll be another five or six rate cuts,” he predicted.