The US Conference Board Leading Indicator has never fallen this far without a recession. Nor have stocks ever bottomed out before it has…
US recession is imminent says TS Lombard. I’m inclined to agree.
The twin engines of a US recession are the combination of an inventory correction and a credit crunch. To get a contraction started, both need to be correcting from an overdone position. The recent drop-off in sales growth relative to inventory, together with the higher cost of carry, suggest that an inventory correction is about to weaken growth — although the overall I/S ratio, while high, is not overly problematic. The inventory impact on growth is, in addition, admittedly less than it used to be because so much inventory is imported (therefore also typically offset to a degree in GDP by a drop in imports). Still, when Q4 GDP data are released on Thursday, we will see whether the positive spread between nominal growth in final sales of domestic product and 90D commercial paper rates has turned negative. Negative carry for goods has always been a very strong indicator that an inventory correction will drop overall growth.
