Signs and symptoms of recession this week:
- Retail Sales (RSAFS): -1.16% month over month (m/m), motor vehicles -1.62% m/m, food and beverage +0.03%. Bearish.
- Industrial Production (INDPRO): -0.73% m/m, manufacturing -1.32% m/m. Bearish
- Producer Prices (PPIACO): -2.00% m/m. Bearish.
- Baltic Exchange Dry Index (trading economics): new 3-year low.
None of this looks good. Note that the first three indicators topped out in the past few months, and are now moving lower, while Baltic Dry has been falling since October 2021. Baltic Dry measures the cost of shipping (source – investopedia) and is more or less a forward-looking index of global demand. Looking at my models, they aren’t forecasting a GDP recession – not just yet – but they are forecasting a brisk decline in both Industrial Production as well as the Producer Price Index.
Ed Dowd’s team produces reports projecting economic activity (source – phinance). Their latest report (Nov 2022) projects a near term “severe economic recession”, but they also point out: “…as unemployment did not rise (as yet) and nominal GDP is increasing substantially (due to high inflation), it is difficult to call the current economic conditions a ‘recession’ as it is more akin to ‘stagflation’.” In this, Ed’s team agrees with Martin Armstrong. Until unemployment spikes and inflation plunges (i.e. until energy prices drop substantially) we won’t experience a classically defined recession.
“It’s a recession when your neighbor loses his job. It’s a depression when you lose your own.” — Harry Truman. What do you call it when nobody loses their job? Stagflation.
Things to think about before placing a trade:
1. Can unemployment spike in the face of the current mass casualty event – a million dead, and millions more disabled?
2. Will the Fed continue to raise rates until they start seeing some unemployment, especially in services?
3. The market seems to expect a pivot from the Fed. What if a pivot doesn’t appear?
This week, the S&P 500 Index (SPX) fell 26.48 [-0.66%], with most of the damage happening on Wednesday, followed by a partial recovery on Friday. Note that Wednesday was when the Producer Price Index (PPI), Retail Sales, and Industrial Production series were all released.
by sagerxx