Markets Take Pulse of US Economy as Headwinds GrowMarketsTakePulseofUSEconomyasHeadwindsGrow

Recession risks are top of mind for investors this week amid intensifying headwinds that will test the durability of the US economy and financial markets. A sharp rise in oil prices is making its way to the pump, driving the national average to its highest mark of the year in mid-September. After a three-year pause, millions of Americans must resume making payments on an estimated $1.1 trillion in student loans in October, with a study by TransUnion finding that one in five student-loan borrowers will feel a “payment shock” of $500 or more. A strike in the auto industry, which has expanded to more factories, has thrown a wrench into manufacturing activity, and a prolonged work stoppage may drive up prices for both new and used vehicles. Meanwhile, budget negotiations in Congress add to uncertainty around the near-term outlook, as a government shutdown remains possible this year.

The convergence of these headwinds is likely to further strain consumers’ wallets and chip away at discretionary spending power, as borrowers also grapple with higher rates for mortgages, auto loans and credit cards. The benchmark 10-year Treasury yield rose to a fresh 16-year high earlier this week, denting optimism for a soft landing. Investors will get a fresh look at the health of the US economy on Friday in the September jobs report, which is forecast to show a slowdown in hiring with 170,000 jobs added. Data from payroll processor ADP showed that private-sector employment growth fell to 89,000, roughly half of the previous month’s total. PGIM Fixed Income’s All the Credit podcast discusses opportunities in high-quality credit and how tactical allocations can provide reasonable insulation from outside drawdowns and downturns, even if the economy proves less resilient than expected.