The seeds for the 2023 U.S. recession were sown a while ago by the relentless decline in the Conference Board’s leading economic indicator, which has now declined for eight consecutive months. The data go back to 1959 and I can tell you that at no time in the past have we seen such a string of weakness like this, alongside a 5.6 per cent annualized contraction over such a time frame, without a recession following within a quarter of two.
The silver lining for 2023? Let me just say that I believe the conditions are in for a substantial decline in inflation. Mostly because the root cause is fading, notably clogged up global supply chains. And demand is softening now that the fiscal stimulus effects are largely in the rear-view mirror.burst was transitory after all, and reflected the shift in the aggregate supply curve, which is now in the process of thawing out in both the labour and product markets.
In other words, we never see a recession bottom in stocks happen absent an initial decline in Treasury yields, and the mean and median decline from the Treasury yield peak is 160 basis points by the time equities find a low in a recession bear market; so, I am turning even more bullish on bonds now.