5 Things We Watch: Recession, Gasoline, Temperatures, Geopolitics and Portfolio
1) The Recession Playbook
As we start to see recessionary signs pop up in the US economy we’ll outline our recession playbook. As we have talked about before we see manufacturing continuing its rebound into Q4 due to restocking (See orders to inventory in the ISM).
The restocking will mostly be driven by lower input prices from Q1 and Q2 this year but it looks likely to be short-lived with the subsequent developments in energy and weakening economic position. Hence we see profit margins coming under pressure which will naturally lead to layoffs.
Manufacturing will likely enter expansion territory already in October/November and given how most (if not all) recession models are based on cyclical components of the economy, we see the economic consensus converging towards the conclusion of a soft landing with a rapid pace in coming months.
This could in itself be seen as a prerequisite for an actual recession as a recession typically needs some form of exogenous surprise to happen. It is harder to be shocked by economic development if everyone is already preparing for a recession. That is no longer the case.
Chart 1: Our recession timeline