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Kelly Evans: This Is All Pretty Textbook.

Scott Mlyn | CNBC
Kelly Evans
Scott Mlyn | CNBC
Kelly Evans

The thing I don't understand about the "no recession" camp is that we keep checking all of the boxes you would normally check as you're going into a downturn. What--other than hope and the assertion that "we've been waiting too long"--is the case for us avoiding the natural conclusion here?  

The way that expansions end (and recessions begin) tends to follow a fairly typical pattern, and one that we've been following for awhile now. First, housing peaks. Existing home sales topped out at around 6.5 million units in late 2020, and have fallen by about a third since then. New home sales have also fallen by about a third in that time, to around 680,000 units as of April.  

Next is that orders start drying up. New orders for manufactured goods peaked last June, and have been sliding downwards. Orders are obviously a leading gauge of production, and as we've mentioned many times, industrial production peaked last September.  

Around the same time, the yield curves start to invert. The 10-year Treasury began yielding less than the 2-year consistently last July. The 10-year minus the three-month Treasury bill rate, which many seasoned traders prefer, inverted a few months later, around October. Its lead time to recession is often about a year, sometimes more, sometimes less.  

The last things that happen are when employment, income, and consumer spending all start drying up. By that point, the recession has arrived. And we appear to be heading towards that zone now, because the best leading indicator of the labor market--jobless claims--is cracking. This morning, new claims for unemployment benefits jumped to their highest level since late 2021.  

Stocks initially rallied on the claims print this morning, hoping the market would price out further Fed rate hikes. But the hope that equities can avoid selling off into an actual downturn remains more hope than historical fact. In fact, when jobless claims start rising is usually when stocks start falling, as Piper Sandler's Michael Kantrowitz has pointed out.  

And there are a bevy of other warning signals out there; the slump in the Fed's loan officer survey, the bank collapses we've seen, the declining "real" gross domestic income reports in recent quarters, the collapse in M2 money supply growth, the rise of temporary employment in recent months, and even last month's jump in the unemployment rate.  

Yes, we have some bright spots, like soaring construction spending and a massive A.I. investment cycle. But the only thing that could really help us avoid a "hard landing" would be a sharp Fed pivot to rate cuts, which seems entirely out of the question since officials refuse to talk about leading indicators. 

So far, this has all played out like a textbook recession would. And the next few chapters don't look pretty.  

See you at 1 p.m...

 Kelly

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