(The Messenger)—Economists have practically sounded the all-clear on a looming recession, but plenty of signs are still flashing red. Clearly, economists were wrong earlier this year when they forecast an economic contraction that has yet to manifest. Could they be wrong now?
To be sure, economic growth, the labor market and consumer spending have proven unexpectedly resilient in the face of rising interest rates and elevated inflation. But there are still plenty of signs a recession might still be on its way.
1. An “uncertain outlook” from leading indicators
Many mainstay economic indicators measure the past. So-called leading indicators reflect what likely lies ahead. The Conference Board’s U.S. Leading Economic Index for July marked its 16th consecutive drop and its longest losing streak since the run-up to the Great Recession in 2007 and 2008.
The index is based on 10 components, ranging from stock prices and interest rates to unemployment claims and consumer expectations for business conditions.
“The outlook remains highly uncertain,” said Justyna Zabinska-La Monica, senior manager of business cycle indicators, at The Conference Board. “The leading index continues to suggest that economic activity is likely to decelerate and descend into mild contraction in the months ahead.”
2. Consumer confidence is just a hair above recessionary levels
The Conference Board’s consumer confidence index came in at 80.2 in August, hovering just above 80, the level that often signals the U.S. economy is headed for a recession in the coming year.
It is also a leading indicator used to predict consumer spending, which drives more than two-thirds of U.S. economic activity.
3. Consumers are foregoing big-ticket purchases
Retailers report that their customers have shifted their purchasing habits, spending less on furniture and other big ticket items in favor of necessities. They have also been trading down on grocery items, ditching pricier cuts of beef and buying chicken.
“We saw some switch even to some canned products, like canned chicken and canned tuna and things like that,” Costco’s Chief Financial Officer Richard Galanti told analysts on a May conference call.
Consumer spending has remained one of the bright spots in the economy, but most investors expect consumer spending to slow by as early as next year, Bloomberg’s latest Markets Live Pulse survey found.
4. Credit cards are getting maxed out
U.S. consumers ran up their credit card debt past the $1 trillion mark for the first time last month, according to a report on household debt from the Federal Reserve Bank of New York.
Total household debt, which includes home and auto loans, has eclipsed $17 trillion.
The Federal Reserve Bank of St. Louis reports that credit card delinquencies, which are still low compared to periods such as the Great Financial Crisis, are on the rise.
5. Banks are increasingly reluctant to lend
The latest Senior Loan Officer Opinion Survey by the Federal Reserve reports tightening credit conditions across the board, from business loans to home mortgages and consumer credit.
When banks pull back on lending, businesses curb their investments and consumers cut spending, and this trend is expected to continue for at least the rest of the year.
“Regarding banks’ outlook for the second half of 2023, banks reported expecting to further tighten standards on all loan categories,” the Fed survey concluded. “Banks most frequently cited a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further.”
6. Corporate bonds are maturing and refinancing them will be costly
Goldman Sachs estimates that $1.8 trillion in corporate debt is coming due over the next two years and it will have to be refinanced at higher interest rates. The expense will eat up more corporate resources, possibly leading to slower growth and investment.
Recessions occur as debt levels peak and borrowers begin to default. Moody’s has already reported a surge in corporate defaults this year. In the first half of the year, it counted 55, that’s 53% more than the 36 that defaulted in all of 2022.
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7. Manufacturing remains in a prolonged post-pandemic slump
Manufacturing has been in decline for 10 consecutive months, as measured by the ISM Manufacturing Purchasing Managers Index. Respondents to the ISM survey reported weaker customer demand because of higher prices and interest rates.
“Orders are in fact falling faster than factories are cutting output, suggesting firms will need to continue scaling back their production volumes into the near future,” writes Chris Williamson, chief business economist at S&P Global Market Intelligence. “An increasing sense of gloom about the near-term outlook has meanwhile hit hiring and led to a further major pull-back in purchasing activity.”
8. ‘Cascading crises’ could tip the balance of a slowing global economy
China, a growth engine for the past 40 years, is still struggling to recover from the pandemic, global economic growth has fallen below long-term average, and the ailing world could pull the U.S. economy down with it.
Like a plane crash, every economic disaster stems from a confluence of mishaps. Along these lines, G20 nations on Saturday put out a dire warning:
“Cascading crises have posed challenges to long-term growth,” the group said. “With notable tightening in global financial conditions, which could worsen debt vulnerabilities, persistent inflation and geoeconomic tensions, the balance of risks remains tilted to the downside.”
9. The yield curve, a classic recessionary signal, is still inverted
Investors should be paid more for taking a long-term risk than they should for a short-term risk. That’s why the yield on a 10-year Treasury is supposed to pay a higher yield than a 2-year Treasury.
When this is not the case, it’s called an inverted yield curve, and it has long been considered a sign that a recession is due within the next 18 months.
The yield curve for 10-year and the 2-year Treasury has been inverted since July 2022. It’s been inverted for so long that many observers have given up on its reliability — though it still hasn’t been 18 months since it first inverted. As for history, the yield curve last inverted was in late 2019, just before the pandemic U.S. recession.
10. Inflation is sticky, and the Fed isn’t done
The soft landing scenario that is so widely embraced is based on observations that inflation has dropped precipitously as the economy continues to grow at a healthy pace and the labor market is still holding strong with the unemployment rate at 3.8%.
The Fed, which has raised interest rates 11 times since March 2022 to curb inflation, can now take a bow. The consumer price index, which measures inflation, has come down from a peak of over 9% in June 2022 to 3.2% on its last reading in July.
The next reading on CPI, for August, comes out Wednesday, and it may not have budged much.
Meanwhile, the Fed, which next meets on Sept. 19-20 to decide on interest rates, is holding fast to its 2% target for inflation and will keep rates higher for longer, or possibly even raise them further to meet that goal.
Wall Street traders are not expecting another increase this month, according to the CME FedWatch tool, which is based on Fed funds futures trading.
Policy makers are still waiting to see what happens next after raising rates to their highest level in 22 years. Perhaps those actions have already sent the economy on a path of contraction. Or perhaps they haven’t done enough to continue slowing inflation.
Sticky inflation presents on ongoing risk of a recession.
“I believe we must proceed gradually,” Dallas Fed President Lorie Logan said last week, “weighing the risk that inflation will be too high against the risk of dampening the economy too much.”
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Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
