4Q '22 Is Closing Strong, But Recession Expected In 1Q '23
Published Friday, December 23, 2022 at: 8:28 PM EST
The good news is November data continue to come in strong, but the bad news is that a key forward looking indicator is signaling the economy is about to suddenly lose momentum.
Strong economic data for November continued to come in but the forward-looking index of Leading Economic Indicators for the U.S. fell sharply in November, marking its ninth straight monthly decline.
First the bad news. The LEI decreased by 1% in November 2022, following a decline of 0.9% in October. The LEI is down 3.7% over the six-month period between May and November 2022, a much steeper rate of decline than its 0.8% contraction over the previous six-month period, between November 2021 and May 2022, according to economists at The Conference Board, which administers the index.
“The US LEI suggests the Federal Reserve’s monetary tightening cycle is curtailing aspects of economic activity, especially housing,” said Ataman Ozyildirim, a senior economist at The Conference Board. “As a result, we project a US recession is likely to start around the beginning of 2023 and last through mid-year.”
The LEI has definitively plunged months before every recession since the 1950s, except for the Covid-19 recession, which was different from all other downturns.
The good news: The GDPNow algorithm forecasts U.S. economic growth in the current quarter, which ends December 31, will be 3.7%, a very strong growth rate. In contrast, the consensus of leading economists surveyed by Blue Chip Economics on December 7 predicted a growth rate of 1.2%,.
The GDPNow algorithm was designed by the Federal Reserve Bank in Atlanta to update its growth estimate as new economic data are released throughout every quarter. The actual growth rate of U.S. gross domestic product is not announced by the government until a month after the end of every quarter.
In addition, in another sign of economic strength, housing starts declined in November but they’re not so far off the recent peak of 1.8 million and much higher than the level hit before entering the 2008 recession.
Though the LEI is signaling a recession is about to hit in the next three months, the strength in housing and the strong growth prediction for the current quarter from the GDPNow algorithm indicates the recession could be short-lived and still might be averted depending on Federal Reserve policy in the next few months.
The bear market, now six months old, has been volatile, as hot-money Wall Street speculators moved in and out of stocks this past week, amid the usual tax-driven loss-taking that occurs before the end of every year.
The Standard & Poor’s 500 stock index closed Friday at 3,844.82 gaining 0.59% from Thursday, and down 0.2% from a week ago. The index is up +71.8% from the March 23, 2020, bear market low, and 19.84% lower than its January 3rd all-time high.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.
This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.
This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.
Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.
- Despite Bank Fears And A Fed Hike, Stocks Climbed For The Week
- Bank Panic And Strong 1Q '23 Economic Growth
- Mixed Economic Signals And A Bank Failure
- Service Sector Remained Strong In February, Soothing Investors For Now
- Inflation Rose In January, Indicating Tight Monetary Policy May Continue Into 2024
- Amid Divergent Data, Here's What To Know
- Optimistic Again, Will A Fed Algorithm Be Right Again?
- The Bipolar Economy Of 2023
- On Wednesday, We’ll Know If The Federal Reserve Will End Inflation By Causing A Recession
- Technology Drove S&P 500 1.9% Higher Friday, But Look At Tech's Terrible 2022 Loss
- Here What To Know To Invest Wisely
- Prudence Requires Positioning Portfolios For An Economic Expansion