A new type of economic slowdown?

<p>Kia ora,</p><p>Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news the global economic slowdown is coming but it might not be like every other slowdown.</p><p>There is more evidence that the giant American economy isn't expanding as fast as previously. First, the <a href="https://www.interest.co.nz/sites/default/files/2023-07/cfnai-july2023.pdf" target="_blank"><strong>National Activity Index</strong></a> released by the Chicago Fed delivered a weakish result for June when it saw "little economic growth".</p><p>And the internationally-benchmarked Markit flash PMI for the US <a href="https://www.pmi.spglobal.com/Public/Home/PressRelease/bbdd92c5f4a34bb5975b23263409ad3d" target="_blank"><strong>reported</strong></a> a more modest expansion in July. Their service sector is still in a modest expansion, and the factory sector's contraction is now only very minor, which is an improvement for manufacturing but a slowdown for the service sector.</p><p>However a strong majority of business economists now say the odds of the US entering a recession in the next 12 months are 50% or less, according to <a href="https://nabe.com/NABE/Surveys/Business_Conditions_Surveys/July-2023-Business-Conditions-Survey-Summary.aspx" target="_blank"><strong>a new survey</strong></a> that was taken in the first half of this month.</p><p>How does all this square with the steep inversions in bond yields? More professional economists are explaining that the yield curve actually signals the slowdown in inflation that typically accompanies a recession, but not the actual recession itself. Without a weak labour market they may not actually get the 'usual recession'.</p><p>It still may come of course. One indicator is that there has been a flurry of junk-bond credit rating downgrades recently. They reached a three year high of 120 in the June quarter (since the pandemi