AFMC - Weekly Market Pulse: Is The Recession Finally Here?
2024-01-22 15:40:00 ET
Summary
- The General Business Conditions index fell to -43.7, a depth only exceeded by the -78.2 reading in April of 2020 with the economy shut down for COVID.
- New orders (-49.4 vs -11.3) and shipments (-31.3 vs -6.4) also posted sharp declines and unfilled orders continued to shrink significantly (-24.2 vs -24).
- The wholesale inventory/sales ratio also rose throughout 2022 and into early 2023 and peaked in March of last year at 1.41 from a low of 1.22 in January of 2022.
- Unemployment is still below 4% and jobless claims this week were back down to 1960s levels, less than 200k.
The financial commentariat first started to worry about recession in April of 2022 when the spread between the 10-year Treasury rate and the 2-year Treasury rate turned negative - the yield curve inverted. It subsequently righted itself to positive territory until July of 2022 and has stayed inverted ever since. Since an inverted yield curve has preceded almost every recession in the post-WW2 period, it is seen as a warning to policymakers and investors alike. The lag between inversion and recession is, however, as is often said about monetary policy, long and variable. In the 1990 recession, it was 19 months, from January ’89 to July of ’90. For the 2001 recession, it was either 39 months or 14 months, depending on whether you count from the first inversion or the second. In 2008, it took 24 months. The 2020 recession did see a very minor inversion in August of 2019, but I don’t think anyone seriously believes that was a warning about the coming COVID pandemic. If you want to round it off, that’s about a 2-year wait, on average, from inversion to recession....
Weekly Market Pulse: Is The Recession Finally Here?