Employers added more than half a million jobs in January, the housing market shows signs of stabilizing or even picking back up, and many Wall Street economists have marked down the odds of a downturn this year. After months of asking whether the Fed could pull off a soft landing in which the economy slows but does not plummet into a bruising recession, analysts are raising the possibility that it will not land at all — that growth will simply hold up.
Just remember: when everyone starts to agree, it's time to worry. Also: everything takes longer than you think. Analysts may be bored of waiting for a recession that keeps not happening, but their boredom doesn't mean anything. Toward the middle of this year the Fed's interest rates will start to bite and the economy will turn down.
Unless I'm being too impatient as well. Maybe a good economy will last even longer than I think. We'll see.
Must have been a Heinlein character - If everyone agrees about something going to happen you can be sure they're wrong.
Maybe they're playing eleven dimension chess so that the downturn comes just in time to boost the out parties chances in the next election.
The tech industry doesn't agree. More companies are still announcing layoffs. Just recently it was Zoom and Gitlab, and today Github.
Though I think a certain amount of them are doing it to stay in the Kool Kids Club. Apple, for example, is not though they are very contrarian to all of the Kool Kids in the industry.
The yield curve is the tell to watch. It's inverted just about as much as it was prior to the Great Recession. I'm on Team Kevin when it comes to his downturn prediction.
It just shot way past the Great Recession. According to the NY Fed the current probability of a recession in the next 12 months is 57.13%, the highest it's been since the early 80s. Zoinks!
https://www.newyorkfed.org/research/capital_markets/ycfaq.html#/interactive
Time to worry is when 2 years get lower than 10s. That’s true anticipated Fed action in response to something negative. Long rates being lower then short mearly means the market believes inflation will subside.
And Bond yields really should rise as the cost of carry is painful when you get 3.6 Coupon and finance at 4.59. Can’t hold those pups too long. When that long rate goes up that’s when we can start to worry. A curve flattening will kill housing.
I'm with you Kevin. The fed's rate hikes will catch up and wreck it all. Wait and see.
Next jobs reports will be "normal", after that half normal and unemployment starts going up, then the bottom starts to fall out.
The infrastructure act programs are starting to kick in, so that might help a bit. Spending to replenish munitions used in the Ukraine war will help a little too. The war in Ukraine helped to trigger a spike in energy and food prices and now may help ameliorate this downturn.
Quoting from memory, but I think the average postwar expansion has lasted around six years. So based on that alone, we should be good until the latter part of 2026. Unless, of course, monetary policy has been too restrictive. But maybe it hasn’t!
I just want to reiterate that I staked a flag saying over half a year ago that the economy was so strong that it could absorb the effects of very large Fed rate increases without crashing.
Also, Fed rate changes are felt immediately, but not widespread. The knock-on effects may take several months, but as time goes on, they trickle down and add up. Didn't anyone notice the 25K+ jobs in Construction in the January report?
Additionally, I told you to, for the time being, pay more attention to nominal GDP because temporary exogenous inflation would distort the macro picture. Lots of people paying attention to negative real GDP claimed we were in a recession, which was absolutely ridiculous.
People are so intent on proving that history is repeating itself (all over again), that they get caught in confirmation bias in the echo chamber, ignoring the importance of the data points that are anomalous.
> Unless I'm being too impatient as well. Maybe a good economy will last even longer than I think. We'll see.
And we are the ones called Team Transitory because we had high inflation for a whole year.
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