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Executive Summary

The National Bureau of Economic Research (NBER) makes the official declaration of recessions, which can occur up to a year after the official start date of the recession. Currently many economists are debating whether the U.S. will enter recession in 2024. This week’s missive provides a number of datapoints. First the Chicago Purchasing Managers’ Index May 2024 reading is 35.4 (first graph). Next the Institute for Supply Management produces a national manufacturing PMI which fell in May to 48.7 (note above 50 is expansionary, below is contractionary). The third graph shows the service sector which makes up two-thirds of GDP. In April of 2024 it fell to 49.4 (third graph). And the fourth graph shows the six-month moving average of the rate of change of the Conference Board Leading Economic Index. The data are all pointing in one direction.

Please continue to The Details for more of my analysis.

“In the business world, the rearview mirror is always clearer than the windshield.”
–Warren Buffett

The Details

Currently there is much debate among economists as to whether the U.S. will enter a recession this year. Some economists believe a recession has already begun but has not officially been declared. In this missive, I will review some economic indicators to clarify the picture.

The charts included in this newsletter are from Advisor Perspectives. The first chart shows the Chicago Purchasing Managers’ Index (PMI). An index reading above 50 indicates a manufacturing expansion, whereas a reading below 50 denotes a contraction. The Index fell in May for the sixth consecutive month. The current reading of 35.4 is the lowest reading since May 2020. This reading is also below the level recorded at the beginning of six of the past seven recessions.

The ISM (Institute for Supply Management) produces a national manufacturing PMI. The Index for May fell to 48.7. This level, as shown in the graph below, is below the reading at the start of many prior recessions.

The services sector makes up over two-thirds of GDP in the U.S. The April ISM PMI for the services sector fell below 50 to 49.4. This indicates that the largest contributor to GDP was in contraction. The April report included the following statement, “The decline in the composite index in April is a result of lower business activity, slower new orders growth, faster supplier deliveries and the continued contraction in employment. Survey respondents indicated that overall business is generally slowing, with rates varying by company and industry.” The May reading will be released this week.

The graph below illustrates the six-month moving average of the six-month rate of change of the Conference Board’s Leading Economic Index (LEI). As stated by Jennifer Nash of Advisor Perspectives, “The LEI has historically dropped below its 6-month moving average (of 6-month ROC) anywhere between 2 to 15 months before a recession. Currently, the LEI has been below its 6-month moving average (of 6-month ROC) for 22 months.

The data presented above make a clear case that the economy is currently in a recession. The National Bureau of Economic Research (NBER) waits for data revisions before they assess when a recession actually began. The declaration of an official recession can occur up to a year after the official start date.

The latest estimate by the Atlanta Fed’s GDPNow model for the second quarter 2024 growth was revised down to 1.8%. And that is with one month remaining in the quarter. This estimate has come down from an early May 2024 estimate of 4.2%. I believe it is safe to say it is very possible that this model will include further downward revisions as more second-quarter data is released.

Former Fed insider, economist, and author, Danielle DiMartino Booth believes we are currently in a recession. At present she is considered in the minority. However, after reviewing the data, I would have to say I tend to agree with Ms. DiMartino Booth.

The S&P 500 Index closed at 5,278, down 1% for the week. The yield on the 10-year Treasury 

Note rose to 4.51%. Oil prices dropped to $77 per barrel, and the national average price of gasoline according to AAA fell to $3.54 per gallon.


© 2023. This material was prepared by Bob Cremerius, CPA/PFS, of Prudent Financial, and does not necessarily represent the views of other presenting parties, nor their affiliates. This information should not be construed as investment, tax or legal advice. Past performance is not indicative of future performance. An index is unmanaged and one cannot invest directly in an index. Actual results, performance or achievements may differ materially from those expressed or implied. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy.

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