Like the planet, typically the economy goes through different seasons. These follow a logical progression with spring followed by summer and so forth. One key difference is certain unusual and impactful events like Pearl Harbor or the Federal Reserves's (Fed) Quantitative Easing program can move the needle and change the economic season.
So what are some of the relevant seasons today?
One such area is early fall. Early fall typically produces solid economic growth. However, a couple of key industries like autos and housing begin to lag.
After early fall is late fall. Here things start to get frosty as winter is coming, but not yet arrived. We usually see recession tripwires being hit, like an inverted yield curve (where short term rates are higher than long term rates) or rising jobless claims after a multi-year low.
Finally, let us consider winter. Typically this is defined as a broad contraction or a recession. This allows the economy to reset for future growth.
We find strong evidence we are presently in early fall. The economy is still growing, but some industries are showing troubling trends. One example is New Homes Sales. Since their peak in late 2017, they are down over 20% (source Bloomberg). Auto Sales, another key component, are also down.
Today’s environment does have a few positives. Oil prices are lower and act as a small tax break. Additionally, bank lending standards for commercial and industrial applicants have been easing. Still, for this cycle, it is reasonable to believe peak economic growth has passed.
||Oil prices lower
||Tariffs hurt profits
||Commercial loan standards easing
||Tax cut earnings boost starting to fade
||Key Industries struggling (autos, housing)
This information is of a general nature and does not constitute financial advice. It does not take into account your individual financial situation, objectives or needs, and should not be relied upon as a substitute for financial or other professional advice to assess, among other things, whether any such information is appropriate for you and/or applicable to your particular circumstances. In addition, this does not constitute an offer to sell, or the solicitation of an offer to buy, any financial product, service or program. The information contained herein is based on public information we believe to be reliable, but its accuracy is not guaranteed.
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*Quantitative Easing is a course of action undertaken by the Federal Reserve to increase the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. **Yield Curve is a line that plots interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. ***Shiller Price/Earnings is a valuation measure applied to the U.S. S&P 500 equity market. *G4 nations comprise of Brazil, Germany, Indian and Japan. ****Quantitative Tightening is a contractionary monetary policy applied by a central bank to decrease amount of liquidity within the economy.
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