Economic Warnings Signs
Economic Warnings Signs
It's clear we're starting to see a slowing economy
We continue to hear that the economy is cooling, yet the stock market continues to set all-time highs.
Where is the data in the economy and labor market cooling? What is everyone referring to?
Last week provided a lot of new data and charts to illustrate just where the economic warnings signs are coming from.
Let’s dive in.
The ISM services PMI is what led the headlines at the end of last week. It had the lowest reading since the pandemic. We also saw new orders, unemployment and business activity all dive lower.
The US Manufacturers new orders and new orders excluding transportation came in much lower than expected and saw a large drop off from the prior months.
Truck transportation has also been falling. Private sector employment has been slowing and historically tends to follow truck transportation as this chart shows.
This is a good chart from Longview Economics which shows both ISM services and manufacturing employment outlooks below 50. Below 50 is historically not a place you want or be.
Speaking of employment. The area that has been bulletproof and continued to be the pillar of strength is showing some cracks. We’ve seen a shift in the labor market these past few months.
There has been negative growth in full time work. This has been a steady indicator of recessions. It hasn’t missed. It’s batting 1.000. No false positives with this.
Last month really saw a nosedive come to the number of people who work as temporary help in the services jobs.
Great chart here from Renaissance Macro Research. It shows how much unemployment has jumped and payroll growth has slowed. These two are both headed in the wrong direction.
With unemployment already ticking higher, small businesses are also planing on hiring less people. You can see how the NFIB small business hiring plans have led the unemployment rate below.
A favorite recession indicator that we have talked about in the past on Spilled Coffee, the Sahm Rule still hasn’t been trigged. But it’s nearing.
The Sahm rule identifies signals related to the start of a recession when the 3-month moving average of the national unemployment rate rises by 0.50 percentage points or more relative to its low during the previous 12 months.
Just how close is it? The trigger is at 0.50%. It’s currently at 0.43%. A little too close for comfort.
A lot has changed in a few months time. We do have to keep in context where the labor market and economy is coming down from. It was white hot and a cooling was a certain at some point. That level just wasn’t sustainable. It’s just a matter of how much it cools.
The attention now turns to the Fed and when it starts to cut interest rates. Does employment now level off, or continue to soften and a recession follow?
It’s clear the road is going to get bumpier. The economy now has some headwinds to tackle.
How deep this goes and how long it lasts will be what’s important. The problem is we don’t quite know how quickly conditions are cooling. This summer and the lead up to the elections just got a whole lot more interesting.
The Coffee Table ☕
I came across a post by Adam Kuznia who writes
called 40 lessons from a 40-year-old. It was an enjoyable read and so many of these things are such good reminders from the farmer Adam. I like his straight forward and honest writing.My family and I went to a drive-in movie theatre while we were on vacation and saw Inside Out 2. It was a good movie and we all really enjoyed it, especially the kids. To sit outside watching a movie during a Wisconsin summer night is tough to beat.
I agree with Breaking Bad and Game of Thrones as 1st and 2nd for best TV shows of all time. 3rd I would have had Sopranos. I also think Succession is too low. Do you agree with this?
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