by Franklin J. Parker, CFA
The Summary
Last week we saw data on employment, which was worse than most expected. Though the private sector created 223,000 jobs, the unemployment rate moved from 3.7% to 3.9%. Job openings remained about the same as last month, and the services sector posted slightly worse than expected. Overall, the data remains mixed: not terrible but not good either. The slow ticking higher of unemployment has been enough to set off one of our recession warnings (see this week’s Chart of the Week).
This week is the all-important inflation figure. After Fed Chairman Powell’s testimony last week, which put investors at ease that rates will be coming down soon, investors are watching inflation closely — the only figure standing in the way of the Fed cutting rates. There are other cracks forming, however, with the banking sector under increasing stress from defaulting commercial real estate loans, for example. This is a story that I am watching extremely closely.
In all, my opinion remains about the same: this appears to be a pre-recessionary environment, and caution is warranted. Exactly which risks you can afford to take, however, will depend on your goals.
Chart of the Week
One of our recessionary signals is based on the headline unemployment rate. This particular alarm tends to ring about six to twelve months before a recession. Last week’s unemployment rate gave us the 7th month in a row of this recession signal offering its warning. Everything in this cycle has been in slow motion, so it is very possible that we see this signal flash for several more months in a row before something changing. Even so, this is part of why I am suggesting a cautious stance.
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