{"id":31792,"date":"2023-07-05T15:39:49","date_gmt":"2023-07-05T19:39:49","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/a-check-on-the-economic-screws-i-told-you-so-edition\/"},"modified":"2023-07-05T15:39:53","modified_gmt":"2023-07-05T19:39:53","slug":"a-check-on-the-economic-screws-i-told-you-so-edition","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=31792","title":{"rendered":"A Check On The Economic Screws; ‘I Told You So’ Edition"},"content":{"rendered":"
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<\/picture>
<\/figcaption><\/figure>\n

In our February 2023 article (here)<\/span>, that last checked on the economic screws, we stated…”The only serious threat to the economy (and the stock market) in the next 6 months is the politics around the insane ‘debt-ceiling’.” Now that the threat of economic suicide (debt ceiling) is gone, we report on the current state of the economic screws that hold the economy together,<\/span><\/p>\n

The Screws Holding the Economy Together<\/h2>\n

The first chart below is the BaR grid<\/strong> (from econpi.com) for June 9, 2023, and the second chart is the most recent chart dated June 16, 2023.<\/p>\n

\"1\" <\/picture>
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econpi.com<\/span><\/p>\n<\/figcaption><\/figure>\n

\"2\" <\/picture>
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econpi.com<\/span><\/p>\n<\/figcaption><\/figure>\n

Notice that both the LD (leading indicators) and MoC (mean of coordinates) have moved back into the expansion quadrant<\/em>.<\/span> This means that the average of economic measures are, once again, starting to show economic growth. This screw is no longer loose, and progressively getting tighter.<\/span><\/p>\n

The GDPNow<\/strong> estimate of Q2 2023 is averaging 2%. This screw is ‘tight enough’ (chart below).<\/p>\n

\"3\" <\/picture>
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GDPNow<\/span><\/p>\n<\/figcaption><\/figure>\n

Industrial Production<\/strong> of the United States increased 0.2% y-o-y in May of 2023, matching the smallest increase since the pandemic recovery started in 2021. Although the rate<\/em> of increase is low, industrial production does continue to increase. This screw remains tight enough, but just barely (chart below).<\/p>\n

\"4\"<\/span> <\/picture>
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tradingeconomics.com<\/span><\/p>\n<\/figcaption><\/figure>\n

Capacity utilization<\/strong> either stalls or drops ahead of recessions. However, it is a necessary <\/em>condition,<\/em> but not sufficient<\/em> for a recession; no recessions resulted following the drop in capacity utilization of 1985, 1995, and 2015. Capacity utilization has been increasing (green marking below) making this screw tight enough.<\/p>\n

\"5\"<\/span> <\/picture>
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FRED<\/span><\/p>\n<\/figcaption><\/figure>\n

PCE (personal consumption expense)<\/strong>, which is the Fed’s preferred gauge of inflation, has been trending lower all year. This screw is tight enough (chart below).<\/p>\n

\"6\"<\/span> <\/picture>
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tradingeconomics.com<\/span><\/p>\n<\/figcaption><\/figure>\n

The University of Michigan consumer sentiment<\/strong> for the US has been trending higher for more than a year. This screw is tightening.<\/p>\n

\"7\"<\/span> <\/picture>
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tradingeconomics.com<\/span><\/p>\n<\/figcaption><\/figure>\n

The Aruoba-Diebold-Scotti business conditions index<\/strong> is designed to track real business conditions at high frequency. The average value of the ADS index is zero. Bigger positive values indicate progressively better-than-average conditions, and bigger negative values indicate progressively worse than average conditions. The index shows that business conditions have improved and are above average which makes it a tight economic screw (chart below).<\/p>\n

\"8\"<\/span> <\/picture>
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Phili Fed<\/span><\/p>\n<\/figcaption><\/figure>\n

Manufacturing PMI<\/strong> for the US has decreased the past 3-months and has been in a protracted fall from mid-2021 levels and is below pre-COVID levels. This screw is loose.<\/p>\n

\"9\"<\/span> <\/picture>
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tradingeconomics.com<\/span><\/p>\n<\/figcaption><\/figure>\n

Non-manufacturing PMI has been trending lower since 2021, but is still above 50 which means it is still growing. This screw is tight enough, but is loosening.<\/p>\n

\"8\"<\/span> <\/picture>
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tradingeconomics.com<\/span><\/p>\n<\/figcaption><\/figure>\n

Banks tightening lending-standards<\/strong> always precedes recessions, but tightening lending-standards does not always lead to recessions; e.g. 1994-1999 and 2014-2016. The tightening of lending-standards seems to be leveling off, but what is clear is that lending standards are raised when the FFR<\/strong> is raised, and recessions happen only if rates get too high for the economy to cope.<\/em> At the moment, it is unknown if the Fed will go too far, which means this screw is loose.<\/p>\n

\"10\"<\/span> <\/picture>
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FRED<\/span><\/p>\n<\/figcaption><\/figure>\n

However, recessions occur when both lending-standards<\/strong> and<\/em> delinquency-rates<\/strong> are rising. At the moment, delinquency-rates are at low levels and not rising (green highlight below). This screw is tight.<\/p>\n

\"9\"<\/span> <\/picture>
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FRED, ANG Traders<\/span><\/p>\n<\/figcaption><\/figure>\n

Household debt service<\/strong> as a percent of disposable income Is just above historic lows and going lower. This is a tight screw.<\/p>\n

\"13\"<\/span> <\/picture>
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FRED<\/span><\/p>\n<\/figcaption><\/figure>\n

Recessions are always<\/em> preceded by at least one-year of falling housing starts<\/strong>. Housing starts had been falling for 12-months, but spiked 22% higher in May. This screw is loose. but starting to tighten rapidly.<\/p>\n

\"11\"<\/span> <\/picture>
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FRED, ANG Traders<\/span><\/p>\n<\/figcaption><\/figure>\n

Truck transport employment<\/strong> stops growing or declines and heavy truck sales collapse<\/strong> for more than a year ahead of recessions. Truck transport employment is at all-time highs and truck sales, while below ATH, are above the long-term average. This continues to be a tight economic screw.<\/p>\n

\"12\"<\/span> <\/picture>
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FRED<\/span><\/p>\n<\/figcaption><\/figure>\n

The BofA High Yield Spread Index<\/strong> rises as economic conditions worsen (red indications), but not every rise results in a recession. Currently, the High Yield Spread Index is signaling an economic recovery (green highlight below). This is a tight screw.<\/p>\n

\"14\"<\/span> <\/picture>
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FRED, ANG Traders<\/span><\/p>\n<\/figcaption><\/figure>\n

The Most Important Screw<\/strong><\/h2>\n

The fiscal response<\/strong> to COVID produced a post-WWII record government budget-deficit (private-sector surplus) which prevented a depression. The net-transfer (spending minus taxation) to the private-sector was +$2,908B<\/strong> in fiscal 2021. But in April and June of 2022, taxes drained ~$400B and ~$125B, respectively, from the private sector, and a return to pre-COVID spending levels produced a net-transfer of only +$1,166B<\/strong>; a nearly-<\/strong>2\/3 reduction in private-sector surpluses<\/strong> which caused economic and stock market weakness in Fiscal 2022 (Treasury fiscal year-end is September 30).<\/p>\n

So far, in fiscal 2023 (which started October 1, 2022), the net-transfer has been +$1,200B, <\/strong>compared to a mere +$714B<\/strong> at the same time last year. That means that the net-transfer rate is running 68% higher than last fiscal year! <\/strong>It is virtually impossible to shrink the economy with that level of private-sector surplus. The positive effect of this increase in the private-sector surplus can be seen in our liquidity model and in the stock market (chart below).<\/p>\n

\"15\"<\/span> <\/picture>
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ANG Traders, stockcharts.com<\/span><\/p>\n<\/figcaption><\/figure>\n

In conclusion, the balance of “economic screws” are tight, and now that the threat of economic suicide (the debt-ceiling) is over-with, and the fund-flows from the Treasure are running 68% higher than last year, it is highly unlikely we see a recession in the next 6-12 months.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

In our February 2023 article (here), that last checked on the economic screws, we stated…”The only serious threat to the economy (and the stock market) in the next 6 months is the politics around the insane ‘debt-ceiling’.” Now that the threat of economic suicide (debt ceiling) is gone, we report on the current state of […]<\/p>\n","protected":false},"author":1,"featured_media":31793,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-31792","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nA Check On The Economic Screws; 'I Told You So' Edition | iFintechWorld<\/title>\n<meta name=\"description\" content=\"In our February 2023 article (here), that last checked on the economic screws, we stated..."The only serious threat to the economy (and the stock market)\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=31792\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A Check On The Economic Screws; 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