Current Events Wrap Up

This article is provided by ITR Economics in partnership with Sheet Metal & Roofing.


Debt Ceiling

The US government is nearing a potential default on its debt, as the legislature has yet to authorize an increase in government bond issuances to fund the payment of existing debt obligations. The US Treasury has raised alarm bells in recent months about the default that will occur should Congress not raise the debt limit, with estimates for a timeline ranging from the beginning of June to later this summer. The Treasury is already employing extraordinary measures to fund its obligations, and while there are some unorthodox methods by which to raise the debt ceiling, the most plausible scenario remains an act of Congress.

The impacts of default are still unknown and would likely vary depending on the duration and resolution strategies, but the potential default generally poses a downside risk to our outlook for a mild recession next year. A recent blog post by ITR Economics CEO Brian Beaulieu explores in greater depth the possibility of default.

Bank Failures

Regional banks remain under pressure following the failure and subsequent sale of First Republic Bank to JPMorgan Chase. First Republic was the third bank to fail this year, following the failures of Silicon Valley Bank and Signature Bank in March. The tech sector has been most acutely impacted, as Silicon Valley Bank was a large lender for startup companies and Signature Bank was a stronghold for cryptocurrency firms. While there may be additional pain for regional banks ahead – especially given the speed of information transfer through social media – we do not anticipate a larger systemic problem.

Interest Rates

In its most recent meeting, the Federal Reserve Board raised the federal funds rate by an additional 25 basis points, bringing overnight lending rates to 5.0%–5.25%. Higher interest rates have also filtered through to other debt markets, such as credit cards, automotive loans, and personal loans. Delinquencies, while rising, have remained relatively low thus far. This trend is in stark contrast to the lead-up to the Great Recession, wherein debt loads and delinquencies rose rapidly to record highs that were often two- or three-fold higher than the current level. US Credit Card Delinquencies, for example, were around 4% in the run-up to the Great Recession and peaked near 7%; they are currently at 2.3%. We continue to monitor delinquencies and other metrics of consumer health for signs of the upcoming recession.

Mortgage rates have virtually plateaued in recent months, coming in between 6% and 7% since November. As a result, many homeowners have found themselves in “golden handcuffs” − current interest rates disincentivize their moving into new homes, as their current mortgages are likely at a lower interest rate. Some sources suggest nearly two-thirds of existing mortgages are at interest rates below 4%. In addition, housing affordability remains a constraint; US Single-Unit Housing Starts in the 12 months through March were 18.4% below the year-ago level. Prospective homebuyers continue to be priced out of the market and are remaining in rental markets; US Multi-Unit Starts were 12.0% above the year-ago level in March.


While we currently anticipate a mild recession for the US economy, the balance of risks is to the downside, especially should the US government default on its debt. While you prepare your business for the upcoming contraction, ensure you have strategies at the ready in the event that results come in below (or above) our expectations. A major tool in your arsenal for these potentialities is a cash buffer. Cash will allow you to invest in your business should consumers ultimately will the economy along, and it will provide shelter from decreased business should the recession last longer or become deeper than we are currently anticipating. While banking stress may make you nervous about keeping excess cash, note that we do not expect a system-wide collapse for the banking sector.


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