Most anticipated recession ever.

The effects of tightening financial conditions are seeping into the real economy.

Restrictive monetary policy and quantitative tightening have dramatically increased the cost of capital for the corporate world. Consequently, lenders are cautious and companies are pausing capital investments and curtailing expenses.

At the same time, a glut of inventory in some sectors is slowing restocking and goods manufacturing.

New orders (chart 1) are plummeting, and manufacturing prices (chart 2 and 3) are beginning to adjust. (CPI is also starting to come off its highs, but remains unacceptably elevated.)

As financial and business conditions deteriorate worldwide, global bond markets are now inverted (chart 4). In fact, the global bond market (10yr vs 1-3mth) is more inverted than at any time since 2000.

What does this all spell? R.E.C.E.S.S.I.O.N.

In fact, this seems to be the most widely anticipated recession in history (chart 5).

(Just don’t tell the jobs market yet, as it remains tight. However, I believe hiring appetite has markedly slowed and layoffs are picking up – it just hasn’t shown up in the data yet. Until it does – and until there’s a undebatable decline in CPI – the Fed will continue tightening. In a way the strong employment data is actually helping push us towards recession.)

Chart 1

Chart 2

Chart 3

Chart 4

Chart 5

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  1. notabilia

    The word “recession” doesn’t seem to move the panic needle anymore, except for the anguish of the people who will have to suffer through it. How far away from “recession” does the word “Depression” lie, or would that concern be barely a ripple on that last chart?


    1. Dumb Wealth

      While everyone is anticipating recession, I think most expect it to be shallow. It’s not going to feel real until layoffs increase. When you consider the adjustments due to inflation, companies have found a way to keep people while lowering their real salaries expense. So perhaps layoffs don’t hit panic levels during this recession.