Last week we saw lots of important economic figures, and most investors are overlooking the ever-more negative pitcture of the underlyling economy. Overall, consumers are becoming more strained, and using credit much more than expected. We are also seeing the number of people unemployed and underemployed grow.
The important figure this week will be inflation, as it hits just before next week’s Federal Reserve meeting (investors expect a cut next week). However, what most investors also forget is that rate cuts tend to happen just before a recession, so rate cuts are not necessarily a happy signal.
Let’s Connect
There are some bright spots. Companies are making money (albeit barely), job openings remain strong, and consumers are still spending money.
The economy tends to move in a cycle. First, you have a healthy expansion which morphs into an unhealthy expansion. After these we typically see a pre-recessionary environment and then a recession. Each phase comes with its own unique signs, and, at least as I read the tea leaves, we are currently in the pre-recessionary phase. It tends to be characterized by slowing growth, mixed signals, and high valuations — almost exactly the combination we see in the economy today.
Chart of the Week
This week we are looking at the number of job openings, as a percentage of the population. This chart is showing us two main things:
- Job openings tend to fall ahead of a recession, and they have fallen quite strongly from their peak.
- After an initial overcorrection, job openings have fallen well below the pre-Covid growth trajectory (blue dotted line).
Job openings, after touching all-time highs, have fallen precipitously in the past two years. Overall, the growth rate in job openings has not nearly matched the pre-Covid growth rate, and I see this as a negative signal.
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