USA: Two-Speed Growth, Not Recession

The US economy continues to grow, but the quality of growth is becoming ever more important. The July figures and mid-August claims data do not point to a recession: they point instead to an economy in which housing and consumer-sensitive demand are slowing, while investment, technology and defence are keeping a significant portion of the cycle afloat.

The weakest signal comes from housing. Housing starts fell 12.4% to an annualised rate of 1.239 million units, while single-family starts dropped 9.9% to 808 thousand. This is a significant deterioration, consistent with a sector still squeezed by the cost of credit and poor housing affordability.

Housing: weak activity, less negative pipeline

The picture is not, however, clear-cut. Building permits rose 5.0% to 1.443 million, with single-family authorisations up 2.5%. This is not enough to speak of a reversal: actual housing starts remain weak. But it suggests that the pipeline is not collapsing and could respond swiftly should financial conditions become less restrictive.

Industry: the aggregate figure conceals sharp dispersion

Industrial production rose 0.2% in July, as did manufacturing output. Capacity utilisation edged up to 76.3%, still 3.1 percentage points below the long-run average. On the surface, this is a modest growth reading. Beneath the surface, however, the composition is far more interesting.

Consumer goods fell 0.4%, while business equipment rose 0.8%. Defence & space equipment gained 1.8%; by contrast, motor vehicles & parts fell 2.1%. In other words, industry and manufacturing are not accelerating on a broad-based basis: support is coming primarily from capex, infrastructure, technology and defence.

Labour: few layoffs, but hiring less fluid

Initial jobless claims fell to 206 thousand, from a revised 212 thousand. The level remains low and continues to signal that firms are not embarking on a significant phase of layoffs. Continuing claims, however, have drifted back up towards 1.8 million.

The configuration is that of a low-firing / low-hiring labour market: those in employment tend to hold on to their jobs, but those who lose them face a less dynamic market than during the stronger phases of the cycle. This is consistent with a cooling economy, not with a labour market already in distress.

Fed and markets: the slowdown allows for a wait-and-see stance

Taken together, these data do not reinforce the thesis of a renewed acceleration in the US economy. Nor do they justify a recessionary reading. The result is an orderly slowing: weak enough to allow the Federal Reserve to await further confirmation, yet resilient enough not to compel a dovish pivot.

For Treasuries, the macro message is only part of the story. The long end of the curve continues to embed term premium, fiscal dynamics and inflation risks as well. For equities, the implication is similar: the level of the index matters less than internal dispersion. If growth remains supported by a handful of drivers — AI, capex and defence — the market becomes increasingly sensitive to any loss of momentum in that very leadership.