Rule Five Looming Recession Friday

The other day, The Messenger Business page gave us ten signs that we may be looking at a recession in the near future.  (Wait, aren’t we already in one?)  Here are their ten points, with a few words of each, with my comments; please go read the whole thing, of course.

1. An “uncertain outlook” from leading indicators

Many mainstay economic indicators measure the past. So-called leading indicators reflect what likely lies ahead. The Conference Board’s U.S. Leading Economic Index for July marked its 16th consecutive drop and its longest losing streak since the run-up to the Great Recession in 2007 and 2008.

This is a tad on the arcane side, but it sure doesn’t look good.

2. Consumer confidence is just a hair above recessionary levels

The Conference Board’s consumer confidence index came in at 80.2 in August, hovering just above 80, the level that often signals the U.S. economy is headed for a recession in the coming year.

This I can confirm.  Most everyone I talk to hereabouts is expressing doubt; they are postponing purchases and projects, lots of discretionary spending is on hold.

3. Consumers are foregoing big-ticket purchases

Retailers report that their customers have shifted their purchasing habits, spending less on furniture and other big ticket items in favor of necessities.  They have also been trading down on grocery items, ditching pricier cuts of beef and buying chicken.

Of course! Everything is more expensive, and wages aren’t keeping up with prices, as they never do in inflationary cycles.

4. Credit cards are getting maxed out

U.S. consumers ran up their credit card debt past the $1 trillion mark for the first time last month, according to a report on household debt from the Federal Reserve Bank of New York.

Not ours; we’re paranoid about debt. But household debt is untenable, and has been for some time.

5. Banks are increasingly reluctant to lend

The latest Senior Loan Officer Opinion Survey by the Federal Reserve reports tightening credit conditions across the board, from business loans to home mortgages and consumer credit.

Considering that loose, easy credit led in part to the 2008 housing bubble crash, that may not necessarily be a bad thing.

6. Corporate bonds are maturing and refinancing them will be costly

Goldman Sachs estimates that $1.8 trillion in corporate debt is coming due over the next two years and it will have to be refinanced at higher interest rates.

This seems tied to rising interest rates, and the overall reliance on debt.  Whether this lesson sinks in or not remains to be seen.

7. Manufacturing remains in a prolonged post-pandemic slump

Manufacturing has been in decline for 10 consecutive months, as measured by the ISM Manufacturing Purchasing Managers Index. Respondents to the ISM survey reported weaker customer demand because of higher prices and interest rates.

This I can confirm, sort of, by anecdote; my son-in-law works for an OEM parts manufacturer that I won’t name, and he informs me orders have been declining for a while now.

8. ‘Cascading crises’ could tip the balance of a slowing global economy

China, a growth engine for the past 40 years, is still struggling to recover from the pandemic, global economic growth has fallen below long-term average, and the ailing world could pull the U.S. economy down with it. 

China’s big problem is demographic, and that’s going to be much harder to recover from; in fact, they are probably past the point of no return.  China as a nation may not exist fifty years from now.

9. The yield curve, a classic recessionary signal, is still inverted

Investors should be paid more for taking a long-term risk than they should for a short-term risk. That’s why the yield on a 10-year Treasury is supposed to pay a higher yield than a 2-year Treasury.

I don’t have much to say about this except “oh, shit.”

This is the big one:

10. Inflation is sticky, and the Fed isn’t done

The soft landing scenario that is  so widely embraced is based on observations that inflation has dropped precipitously as the economy continues to grow at a healthy pace and the labor market is still  holding strong with the unemployment rate at 3.8%

These folks and the Biden(‘s handlers) Administration insist inflation is coming to a halt, but I’m not buying it.  Gasoline prices here in the Great Land have gone up in the last month or so, when at this time of year they are usually dropping off as the tourist season is coming to a close.  Grocery and home improvement costs are still rising.

We’ll see.  The next election has the possibility of making the biggest difference in economic policy since the 1980 election, but I’m not sanguine about how it will all play out.