Yellen says she doesn’t see a recession. That guarantees it’s coming. Get out of the way!!!

This made me chuckle because it’s true. The same thought crossed my mind when I heard Treasury Secretary Janet Yellen’s remarks yesterday.

For those not aware, Yellen said in a television interview with Bloomberg from the G20 summit in India that she thinks the U.S. economy is on a “good path” and that while growth has slowed, “our labor market continues to be quite strong – I don’t expect a recession.”

She has been saying this a lot recently, and yesterday she also said she thinks inflation can come down without an unemployment spike.

As Federal Reserve chair in 2017, Yellen said we would never see another financial crisis in “our lifetimes”. More recently, in her current position as Treasury secretary, she said as late as October 2021 that inflation was “transitory” while it was accelerating to eventual 40-year highs.

By June 2022, Yellen admitted, “I was wrong then about the path that inflation would take,” but she still mostly blamed it more on Russia’s invasion of Ukraine than on decisions made before the war began.

 

US Economy

 

  • The U. Michigan consumer sentiment index jumped in July boosted by the stock market rally and stabilization in home prices (improving household balance sheet).

 

 

  • Buying conditions for household durables surged.
  • Inflation expectations edged higher, with long-term expectations remaining sticky. This is a concern for the Fed.
  • The Conference Board’s leading and coincident indices have diverged.

 

 

  • The NY Fed’s manufacturing index, the first regional report of the month, held in positive territory in July.
  • Factories are hiring again, and no longer cutting workers’ hours.
  • CapEx plans remain soft.

 

 

  • The stock market continues to signal a rebound in US manufacturing activity
  • Here are the CPI forecasts based on the WSJ survey.

 

 

  • Morgan Stanley sees core inflation running below the Fed’s forecast this year
  • The drop in federal government receipts looks recessionary.

 

 

  • However, the recession “can” keeps getting kicked down the road.
  • The headline retail sales index climbed less than expected in June. However, the “control group” (core retail sales) topped economists’ forecasts
  • Industrial production declined again last month as manufacturing output contracted.

 

 

  • Factory output has been trending lower.
  • The GDPNow Q2 growth estimate is holding above 2% (annualized).

 

 

  • Homebuilder sentiment improved slightly this month.
  • But weak mortgage applications point to downside risks for residential construction.
  • US housing affordability deterioration has been more severe than in other advanced economies.

 

 

  • Residential construction activity eased last month.
  • the pipeline of multi-family units under construction hits a new record, …

 

 

  • … and rents moderate.

 

Source: Pantheon Macroeconomics

 

  • The number of single-family housing units under construction continues to fall.
  • Credit card and auto loan delinquencies continue to rise.

 

 

  • And so are the rejection rates.

 

 

  • The heavily inverted yield curve continues to signal a recession ahead. But is this inversion different?

 

 

  • The region’s manufacturers are boosting prices again.

 

 

  •  The Conference Board’s index of leading indicators is still signaling a recession ahead.

 

 

  • Existing home sales were soft last month as affordability remains a headwind for the housing market.

 

Market Data

 

  • US federal government’s interest costs:

 

 

  • Silver demand has exceeded supply by a large margin.

 

Source: BCA Research

 

  • CTAs have been boosting their exposure to gold.

 

 

  • According to BofA’s fund manager survey, the disparity in sentiment between institutional and retail investors has reached unprecedented levels.

 

Source: BofA Global Research

 

  • JP Morgan’s clients are bearish.

 

 

  • Investors increasingly expect a soft landing for the global economy.

 

 

  • Retail investors are increasingly bullish, …

 

 

  • Investment managers keep boosting their equity exposure.
  • Hedge funds have been short-covering.
  • Increased bankruptcy levels point to wider HY spreads.

 

 

Quote of the Week

 

“Enjoy the little things in life because one day you will look back and realize they were the big things.” – Kurt Vonnegut

 

Picture of the Week

 

Hammock camping in a Cyprus tree in Florida

 

 

 

All content is the opinion of Brian Decker