June 23, 2023

Hello everyone. I’m Alan Beaulieu from ITR Economics. I hope you’re doing well. I’m looking forward to talking to you again on this latest TrendsTalk episode. Let’s talk about some economic realities, and I say that because I’m not sure Federal Reserve Board in particular, and Chairman Powell is dealing with economic realities. He is still forecasting that GDP will grow in 2024 and that there may be two additional 25 basis point rate hikes this year. That would in and of itself not be a bad thing in terms of our forecast, but if they wait to unwind the inverse yield curve, that would make next year’s recession longer than we’re currently anticipating.

I don’t want to say hope because hope is not a very good strategy. It seems reasonable to me that he will not be raising interest rates and that there’ll be enough negative information coming down the pike that they will begin to actually unravel or reverse the inverse yield curve and right size it. And by doing so, keep the recession next year milder than normal until the duration that we’re currently expecting, which is the end of 2024. What are they going to see? Well, they’re going to see that inflation’s continuing to weaken. Energy prices are below year ago levels. Food prices are below year ago levels. Trucking costs are below year ago levels. Shelter, housing and shelter costs going to be coming down really soon based upon leading indicator input. Stock markets likely to experience some downward draft given the trend in our indicators and in the money supply.

When I look at retail sales deflated, it’s tracking below year ago levels. The 12-month moving total is declining off of record high. Remember, that’s deflated. No inflation in there. So it’s just real numbers and it’s 0.3% below year ago levels. And I look at the B2B non-defense capital goods, new orders, that’s 3.2% below year ago levels on the 12/12 rate of change and the 12-month moving total there is slipping lower. It’s a really mild 0.2%. It’s milder than normal, but it’s still moving lower. So we got B2B weakening. We have consumers weakening. Businesses cash balances are going down, profits is slipping lower and by going down on cash balances, not running out of cash, but no longer at record high, so going through their cash, well, profits are begin to go down. This all should culminate in the Federal Reserve Board and Chairman Powell saying, you know what?

Let’s, let’s hold off on that interest rate rise and not do anything for the near term. And then later this year as we tip over into recession, it should culminate in they’re actually lowering the Fed funds rate and and not being so tight. Quantitative tightening is part of the issue here, and if they would cease that and then maybe relax a little bit, then we see a nice mild recession next year. It’s too late to avoid that recession, he’s certainly not going to do anything to stimulate the economy, but if he’s listening, if he’s paying attention to the numbers as we are, he should be able to stop the tightening to the same extent. Certainly stop raising interest rates and begin to loosen as we go forward. Let’s hope that he does. Europe is stop expanding and industrial production is about to go into a recession. We’re going to be going into recession soon. Hopefully this will cue him in that he needs to do something positive, even if that positive is, get your hand off the dial. I’m Alan Beaulieu. ITR Economics. Thank you for joining me for this issue of TrendsTalk.