A looming recession that will never land
There's an old joke: “What's the thing that always comes but never arrives?”
The conventional answer is: tomorrow.
Well, you could also answer, “Recession.”
The only major economic data released on Monday was Conference Board Key Economic Indicators (Ray). This is a predictive measure aimed at predicting economic turning points several months in advance. Although still in territory indicating an impending recession, the index's decline has moderated. The stock fell 4.3% in the first six months, but only 2.9% in the last three months.
The LEI fell by 0.5% in November. Economists had expected a 0.3% decline in December. The figures released on Monday are 0.1% drop.
One way to read this is The likelihood of a recession is growing longer.
The lost history of recession
It was pretty wild to see the conference board explain what the index was telling them.
The Conference Board's Ataman Ozildirim said 18 months ago: “The US LEI fell for the fifth consecutive month in July, suggesting that recession risks are increasing in the near term.” “Consumer pessimism and stock market volatility, as well as a slowdown in new orders in the labor market, home construction, and manufacturing, suggest that the economic downturn will intensify and spread more broadly across the U.S. economy.” The Conference Board projects that the U.S. economy will not expand in the third quarter and could slip into a brief but mild recession by the end of the year or early 2023.
That didn't happen. in fact, Economic growth in the third quarter was 3.2% In the fourth quarter of 2022, it will be 2.6%.
“Although the LEI continues to signal a recession in the near term, indicators related to the labor market, including employment and personal income, remain strong for now. , expects the U.S. economy to slip into recession in 2023 due to high inflation, rising interest rates, and shrinking consumer spending,” the Conference Board said a year ago.
That didn't happen either. Instead, the economy grew at a pace of 2% in the first quarter and 2.1% in the second quarter. The third quarter saw an impressive 4.9%.
Here's how the Conference Board was rated six months ago. The Conference Board currently predicts a short, shallow recession from the fourth quarter of 2023 to the first quarter of 2024. ”
That seems highly unlikely now. Wall Street expects the government to report economic growth of 2% in the fourth quarter of last year. Economic data released last week suggests that growth will accelerate further.of Atlanta Fed GDPNow The estimate (the final estimate before official numbers are released) is 2.4% growth.
Below is the latest review from Justina Zabinska-La Monica of The Conference Board.
“The US LEI fell slightly in December, continuing to signal fundamental weakness in the US economy. Despite the overall decline, 6 out of 10 leading indicators in December fell on the LEI. Nevertheless, these improvements were offset by weaker manufacturing, a high interest rate environment, and weaker consumer confidence.As the monthly decline narrowed, the LEI Six-month and 12-month growth rates have picked up but remain negative, continuing to suggest recession risks. Overall, GDP growth is likely to be negative in the second and third quarters of 2024. However, we expect it to start to recover by the end of the year.”
Therefore, the economic downturn has now receded to the middle of this year.
Please also note that Conference Board no longer necessarily predicts recession, just two quarters of negative growth. As everyone learned in early 2022, two consecutive quarters of negative growth don't officially count as a recession, at least as long as there's a Democrat in the White House.
Still, it's beautiful Worst timing for a sitting president.. We don't want the economy to fall into a recession, or a two-month recession that isn't a recession, six months before the people decide whether to give him a second term.
But if we were Biden, we wouldn't be so concerned about the threat of recession. A resurgence of inflationary pressures is a bigger threat.
Odds of rate cut continue to decline
Last week's economic data reversed expectations that the Fed would begin lowering interest rates as early as March.meanwhile Odds of March interest rate cut suggested by future markets It rose to 85 percent at the start of the new year, was firmly above 75 percent a week ago, and fell below 50 percent on Friday.
This morning, the odds are even lower. plummeting below 40%, despite the lack of weekend economic indicators and nothing other than the LEI on Monday morning. What appears to be happening is that the market is digesting data that suggests: employment and consumption expenditure It held up much better than expected at the end of the year, potentially leading to a resurgence in inflation and likely making Fed officials hesitant to pull the trigger on rate cuts.
In other words, the market believes that immediate threats to the economy are Inflation is stagnant or rising, but there is no recession..
