Connect with us

Recession Warnings Rise, Limiting Fed’s Inflation Fight

Recession Warnings Rise, Limiting Fed’s Inflation Fight

Authored by Lance Roberts via RealInvestmentAdvice.com,

Recession warnings are clearly…

Published

2 years ago

on

Recession Warnings Rise, Limiting Fed's Inflation Fight

Authored by Lance Roberts via RealInvestmentAdvice.com,

Recession warnings are clearly on the rise. Much of the initial media fervor focuses on the inversion of the yield curve.

The 2-year and 10-year Treasury yields inverted for the first time since 2019 on Thursday, sending a possible warning signal that a recession could be on the horizon.” – CNBC

Of course, investors, analysts, and economists continue to debate the meaning of the 2-year/10-year yield-curve inversion. Since 1978, yield curve inversions consistently provide recession warnings.

Most of the yield spreads we monitor, shown below, have yet to invert. However, the best signals of a recessionary onset occur when 50% of the 10-yield spreads that we track turn negative simultaneously. Notably, it is always several months before the economy slips into recession and even longer before the National Bureau Of Economic Research officially dates it.

Source: Treasury.gov Chart: RealInvestmentAdvice.com

Such is essential as when yield spreads initially turn negative; the media will discount the risk of a recession and suggest the yield curve is wrong this time. However, the bond market is already discounting weaker economic growth, earnings risk, elevated valuations, and a reversal of monetary support.

Historically, a recession followed when 50% or more of the tracked yield curves became inverted. Every time. (Read this for a complete history.)

Source: Treasury.gov Chart: RealInvestmentAdvice.com

But it isn’t just the yield curve warning of a recession currently.

Other Indicators Suggesting Recession Risk

Ben Casselman recently penned for Yahoo Finance, “The U.S. Economy Is Booming?” To wit:

“Such predictions [of recession} may seem confusing when the economy, by many measures, is booming. The United States has regained more than 90% of the jobs lost in the early weeks of the pandemic, and employers are continuing to hire at a breakneck pace, adding 431,000 jobs in March alone. The unemployment rate has fallen to 3.6%, barely above the pre-pandemic level, which was itself a half-century low.”

Interestingly, many of the data points suggesting the “economy is booming” are lagging indicators subject to significant negative revisions in the future. Furthermore, as is always the case, record levels of anything are a “record” because such was the high or low watermark of the previous cycle.

For example, Ben notes the U.S. has regained 90% of the jobs lost. Such certainly sounds robust until you realize we are not creating NEW jobs to absorb a growing population but only rehiring for the job vacancies created by the shutdown. However, more notably, near record-low unemployment is also a recessionary warning sign.

Source: St. Louis Federal Reserve Chart via RealInvestmentAdvice.com

While such seems counter-intuitive, it isn’t.

“The economy has to slow somewhat in the not-too-distant future, because at 3.8% unemployment, ‘We’re out of workers. It’s hard to produce more when there is no one to produce it.’” – The Financial Times

As noted, unemployment is a lagging indicator. However, freight transportation is a leading indicator that suggests the economy is NOT booming. If the economy is booming, the demand for goods gets reflected in higher freight shipments. Currently, that is not the case, and when coupled with increased expenditure levels, the slowdown could be more dramatic.

Source: St. Louis Federal Reserve Chart via RealInvestmentAdvice.com

Housing Supply & Mortgage Rates

Of course, given record levels of housing activity rivaled that seen before the “Great Financial Crisis,” we would be remiss not to take note.

Housing is economically sensitive and gets driven by income and mortgage rates. Following the pandemic-driven shutdown, the flood of checks to households, combined with record-low mortgage rates, led to another “great housing boom.”

Housing inventories dropped to low levels due to surging demand and lots of liquidity. However, as we addressed previously, there is no such thing as a “housing shortage.”

“Not surprisingly, recessions have a nasty habit of rapidly increasing the housing supply. As job losses mount, the available pool of buyers who can afford to buy a home sharply contracts. Given that ‘housing inventory’ is a function of buyers versus the number of houses for sale, the numerator’s reduction matters much.”

As mortgage rates rise, so do housing inventories as demand drops. Furthermore, as opposed to employment which is a lagging indicator, inventories at roughly 8-months of supply often predict an impending recession.

Source: St. Louis Federal Reserve Chart via RealInvestmentAdvice.com

As opposed to employment, many other leading indicators currently point to an economic slowdown or worse.

At the same time, the “demand economy,” created by trillions of monetary liquidity sent directly to households, is reverting to a “supply economy.” As supply outstrips demand, the eventual deflationary drag will become problematic for the Fed.

The Fed’s Inflation Fight Will Be Short-Lived

We’ve often argued that in 2020 and 2021, the Fed should have been hiking rates due to the impending inflationary spike from excess monetary liquidity. Unfortunately, the Fed kept rates at 0% for far too long, and now they are getting forced into an aggressive rate hiking campaign to combat an “inflation monster” of their own making.

While many believe the Fed will focus on the inflation fight despite impending financial instability, history suggests they won’t be. Ever since the “Great Financial Crisis,” the Fed has repeatedly rescued the financial markets from declines to maintain stability.

Source: St. Louis Federal Reserve Chart via RealInvestmentAdvice.com

The Fed may indeed be able to hike rates currently to battle inflation without pushing the economy into a recession. While many suggest “this time is different” as the 3-month versus 10-year yield curve is not inverted, as the Fed hikes rates, it won’t take long to catch up.

Source: St. Louis Federal Reserve Chart via RealInvestmentAdvice.com

Despite commentary to the contrary, the yield curve is a “leading indicator” of what is happening in the economy currently, as opposed to economic data, which is “lagging” and subject to massive revisions.

More importantly, while the consumer may be continuing to support growth currently, such can, and will, change dramatically when job losses begin to occur. Consumers are fickle beasts, and the contraction in demand will happen rapidly as a change in psychology occurs.

While many believe the Fed will “stick to their guns” in the fight against inflation, history clearly shows a lack of fortitude to withstand financial instability.

History has not been kind to those that ignore the warnings signaling a potential for a recession.

However, we suspect the Fed will be back to zero interest rates, and monetary QE, far sooner than many expect.

Tyler Durden Mon, 04/25/2022 - 13:05

Read More

Related Topics:
Continue Reading

Government

Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

Published

4 hours ago

on

March 9, 2024

By

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

“When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

“It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

Read More

Continue Reading

Uncategorized

February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

Published

5 hours ago

on

March 9, 2024

By

By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

Read More

Continue Reading

Spread & Containment

Another beloved brewery files Chapter 11 bankruptcy

The beer industry has been devastated by covid, changing tastes, and maybe fallout from the Bud Light scandal.

Published

6 hours ago

on

March 9, 2024

By

Before the covid pandemic, craft beer was having a moment. Most cities had multiple breweries and taprooms with some having so many that people put together the brewery version of a pub crawl.

It was a period where beer snobbery ruled the day and it was not uncommon to hear bar patrons discuss the makeup of the beer the beer they were drinking. This boom period always seemed destined for failure, or at least a retraction as many markets seemed to have more craft breweries than they could support.

Related: Fast-food chain closes more stores after Chapter 11 bankruptcy

The pandemic, however, hastened that downfall. Many of these local and regional craft breweries counted on in-person sales to drive their business. 

And while many had local and regional distribution, selling through a third party comes with much lower margins. Direct sales drove their business and the pandemic forced many breweries to shut down their taprooms during the period where social distancing rules were in effect.

During those months the breweries still had rent and employees to pay while little money was coming in. That led to a number of popular beermakers including San Francisco's nationally-known Anchor Brewing as well as many regional favorites including Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks, and Cleveland’s Terrestrial Brewing filing bankruptcy.

Some of these brands hope to survive, but others, including Anchor Brewing, fell into Chapter 7 liquidation. Now, another domino has fallen as a popular regional brewery has filed for Chapter 11 bankruptcy protection.

Overall beer sales have fallen.

Image source: Shutterstock

Covid is not the only reason for brewery bankruptcies

While covid deserves some of the blame for brewery failures, it's not the only reason why so many have filed for bankruptcy protection. Overall beer sales have fallen driven by younger people embracing non-alcoholic cocktails, and the rise in popularity of non-beer alcoholic offerings,

Beer sales have fallen to their lowest levels since 1999 and some industry analysts

"Sales declined by more than 5% in the first nine months of the year, dragged down not only by the backlash and boycotts against Anheuser-Busch-owned Bud Light but the changing habits of younger drinkers," according to data from Beer Marketer’s Insights published by the New York Post.

Bud Light parent Anheuser Busch InBev (BUD) faced massive boycotts after it partnered with transgender social media influencer Dylan Mulvaney. It was a very small partnership but it led to a right-wing backlash spurred on by Kid Rock, who posted a video on social media where he chastised the company before shooting up cases of Bud Light with an automatic weapon.

Another brewery files Chapter 11 bankruptcy

Gizmo Brew Works, which does business under the name Roth Brewing Company LLC, filed for Chapter 11 bankruptcy protection on March 8. In its filing, the company checked the box that indicates that its debts are less than $7.5 million and it chooses to proceed under Subchapter V of Chapter 11. 

"Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed," USCourts.gov explained. 

Roth Brewing/Gizmo Brew Works shared that it has 50-99 creditors and assets $100,000 and $500,000. The filing noted that the company does expect to have funds available for unsecured creditors. 

The popular brewery operates three taprooms and sells its beer to go at those locations.

"Join us at Gizmo Brew Works Craft Brewery and Taprooms located in Raleigh, Durham, and Chapel Hill, North Carolina. Find us for entertainment, live music, food trucks, beer specials, and most importantly, great-tasting craft beer by Gizmo Brew Works," the company shared on its website.

The company estimates that it has between $1 and $10 million in liabilities (a broad range as the bankruptcy form does not provide a space to be more specific).

Gizmo Brew Works/Roth Brewing did not share a reorganization or funding plan in its bankruptcy filing. An email request for comment sent through the company's contact page was not immediately returned.

 

Read More

Continue Reading

Trending