In our February Newsletter, we talked about how investors of all sorts should be wary and prepared for an economic recession as early as April or May of 2023. We based this information on an interesting 12-minute podcast with Shawn Winslow who is a respected financial expert.
The newsletter touched on some basic characteristics that can be solid indicators that a recession is near or underway:
Experts may suggest that a recession is indicated when there are two consecutive quarters of negative GDP. Nevertheless, as the reports take time to be released and undergo multiple revisions before becoming public knowledge, it can mean that by the point these figures show up, an economic downturn has already begun.
Some of the fundamental indicators that show a probable recession are:
Global Credit Impulse – This indicator has shown rapid declines of 10-20% year over year which points to the probability of a recession taking place in April and May of 2023
Conference Board Leading Indicator Index – This indicator suggests that the recessional media of April or May of 2023 will be equal to, or greater than, the 2001 recession.
The Housing Market – Housing-related jobs and economic activity represent anything between 12 to 15% of the U. S. GDP and employment alone.
The Philly Fed New Orders – Every time the 12-month moving average of this index dropped below 15 for two plus months or a session has always followed.
The Housing Market
One of the most alarming indicators is the condition of the housing market. If this market takes a large hit, it will, in turn, affect the rest of the country and even the world. We can expect a large number of layoffs within the entire workforce spectrum.
Many realtors will be out of a job because of the lack of need for them. Following this will be lenders as well as appraisers. It is easy to see the beginning of a domino effect that will touch all markets on a global level.
Looking at the graph below you can see where the unemployment rate will plummet right around May 2023.
The Global Credit Impulse
The global credit impulse is a measure of the change in new credit issued to the private sector as a percentage of GDP. It is used to assess the strength and direction of global economic growth. The credit impulse is calculated by taking the change in the flow of new credit issued in a given year and dividing it by the GDP of that same year.
The credit impulse is an important indicator because it reflects the pace of growth in credit and its impact on the economy. When credit is growing rapidly, it can lead to increased economic activity and higher growth rates. However, if credit growth slows down or contracts, it can lead to a slowdown or recession.
The concept of the global credit impulse was developed by the Bank for International Settlements (BIS) in 2015 as part of their efforts to improve macroeconomic analysis and forecasting. It is widely used by policymakers, central banks, and financial analysts to understand the state of the global economy and to make informed decisions.
Looking at the graph below you can see where the global credit impulse takes a deep plunge:
The Conference Board Leading Indicator Index
The Conference Board Leading Indicator Index (CLI) is a composite economic index that is designed to forecast the direction of the economy over the next three to six months. The index is comprised of a number of individual economic indicators, such as stock prices, building permits, and initial jobless claims, that are believed to be leading indicators of economic activity.
The Conference Board, a non-profit research organization, publishes the CLI each month. The index is calculated using a statistical method that weights the individual indicators based on their statistical significance and their historical relationships with the business cycle.
The CLI is closely watched by economists, policymakers, and investors as an important tool for forecasting economic growth and identifying turning points in the business cycle. A rising CLI is generally seen as a positive sign for the economy, indicating that economic growth is likely to continue in the near future, while a declining CLI may signal a slowdown or recession.
It is important to note that the CLI is not a perfect predictor of economic activity and can sometimes give false signals. Nonetheless, it is widely regarded as a useful tool for understanding the state of the economy and making informed decisions.
By looking at the graph below you can see where the leading trigger has hit below the threshold and is threatening to bring a recession in early 2023.
At this time in early March 2023, it does not appear that the United States is in an official recession, however, there are experts that believe one is right around the corner. In any event, whether one comes or not, it is always best to be prepared and informed. Once again you can listen to the full podcast and come to your own conclusions as to whether or not you should be worried.