The US could be sinking into a recession by the fourth quarter, Bill Gross said.
The legendary investor pointed to troublesome economic data & banking turmoil seen earlier this year.
The risk of a mild recession can’t be written off in 2024, top forecasters say.
The US economy may be teetering into a recession, and indicators of coming weakness could soon be flashing red, according to “Bond King” Bill Gross.
The legendary fixed income investor and former PIMCO co-founder warned the US was likely sinking into a downturn in a recent post on X. There are signs that slowdown could come sooner than expected, Gross added in an interview with CNBC on Thursday, noting that expectations for GDP growth from the Atlanta Fed are below 1.5% for the current quarter, despite a hot 4.9% growth recorded over the third quarter.
“We will see it in the fourth quarter,” Gross said of a GDP slowdown. “We’re probably going to see it officially … a number that’s positive, but really, in terms of employment, and in terms of jobs, in terms of weakness in many of the indicators, we’re going to see November and December be below the line.”
That’s contrary to what other Wall Street commentators have been saying, as they point to the resilience of the economy and the likelihood that the US avoids a recession this year. Inflation has cooled dramatically from its highs of over 9% in the summer of 2022 and the job market has been strong through 2023.
But headwinds have gotten stronger. Bond yields soared last month to a 16-year-high as investors fret over the impact of rates staying higher for longer. Meanwhile, regional banks have been “devastated” this year since the collapse of Silicon Valley Bank and the rise of Treasury yields at the long-dated end of the yield curve, Gross said.
“Usually that’s indicative of some serious problems in terms of the economy,” he added.
Meanwhile, consumer loan delinquency rates are starting to tick higher. A record number of subprime borrowers are behind on their auto loan payments by at least 60 days, according to Fitch Ratings data.
“For me, that indicates the consumer is falling behind in terms of their ability to pay. And of course, the US economy is 70% based on consumer spending,” Gross said.
The economy also looks to be slowing down as it heads into year-end. The economy added just 150,000 jobs in October, the Bureau of Labor Statistics reported Friday, below expectations for 180,000.
Top forecasters have warned that the risk of a mild recession next year can’t be written off. A synchronized global downturn is the most likely scenario in 2024, JPMorgan strategists previously said, estimating that the US only had a 23% chance of avoiding it.
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