Recession is on the horizon but will it start in Q2, Q3, Q4, or in 2023? Four key reports this will provide clues.
Four key economic reports this week
- Retail Sales for April - 2022-05-17
- Industrial Production for April - 2022-05-17
- Housing Starts and Permits for April - 2022-05-18
- Existing Home Sales for April - 2022-06-19
After those four economic reports we will have a better look at where recession stands.
The following charts are all courtesy of Bloomberg Econoday.
Retail Sales projections
Industrial production projections
Housing starts and permits projections
That's a projected 1.5% decline on housing starts and 2.9% decline on permits.
I'll take the under on both (report weaker than consensus).
Existing Home Sales
That's a 2.0% decline on existing home sales.
I'll take the under.
Second quarter outlook
Those four reports will set the tone for second-quarter GDP. Retail sales is likely the most important and housing starts the least.
I'll take the under on all of the reports. But a small miss to the downside on retail sales might not be enough to put GDP forecasts for the quarter in negative territory.
Retail sales of 0.8% is a pretty strong forecast. Even factoring in the CPI (up 0.3% month-over-month) those are strong numbers.
The retail sales consensus range is huge this month: 0.4% to 2.0%. Retail sales numbers under 0.4% will have a stagflation context.
If we see an upside surprise like 2.0% or even 1.0%, bond yields will soar and so will rate hike expectations.
Powell is probably hoping for weak numbers across the board. There's a very good chance he gets them.
Will April seal the fate?
If the numbers are small misses to the downside, probably not.
Upside surprises may postpone a recession until later this year. A negative retail sales print with falling industrial production and a big miss on existing home sales will mean a recession may have already started.
I expect significant weakness and a recession sometime this year, not next. The May reports will tell us more.
Finally, it's not nominal retail sales that matter, but real (inflation adjusted sales).
For a look at April CPI numbers, please see CPI Year-Over-Year Drops a Bit, But Is it Believable?
This material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.
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