The smart money is selling, of course, for the clanging indicators are the dinner bell announcing the banquet of consequences has been served, and Nemesis doesn’t want the meal to get cold.
Correspondent Wilson R. Logan kindly shared his list of 17 indicators of globally synchronized recession. In my view, each is an alarm bell clanging loudly. As Wilson put it, “recessions have vey clear indicators. We’ve all known it was coming and we’ve all had a long time to think about it.”
For context, recall that the global economy is a tightly bound, highly integrated system, which means disruptions in one subsystem quickly ripple though the entire system. Disruptions tend to amplify one another, creating a cascading effect much like an avalanche: everything looks perfectly stable until the entire mountainside gives way.
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This isn’t presented as a complete list of indicators; there are a multitude of others. But this is certainly a comprehensive start.
Here are Logan’s 17 indicators of global recession:
1) Tighter credit conditions. Banks see the recession coming and start to build a cash cushion, hoard liquidity, de-risk portfolios (the lessons of Bear Sterns).
2) Increasing REPO fails.
3) Volatility in the Japanese Bills market.
4) Near Term Forward Spread inversion.
5) Swap Spread Compression.
6) Term SOFR & EURIBOR calendar spread inversion.
7) 2-10 yield curve inversion.
8) Hours worked, total compensation falling.
9) Falling oil prices.
10) Factory gate prices falling.
11) ISM survey negative sentiment.
12) UofM consumer sentiment survey negative.
13) Increasing credit card debt.
14) Contango in the WTI Futures curve.
15) Falling value of loans to non-financial corporations (NFCs) (see 1).
16) Diverging GDP & GNI.
17) Labor hoarding.
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(CHS note: for example, in Japan, if you want to quit your wretched, low-pay, abusive-boss job, you have to find a replacement first: ‘They refused to let me go’: Japanese workers turn to resignation agencies to quit jobs.)
Thank you, Wilson, for sharing your comprehensive list of global recession indicators. For additional context, let’s turn to two charts.
The first is my inverted pyramid of debt and disposable earnings. This relationship between the cost of servicing debt and how much money is left after paying essential expenses (food, utilities, shelter, etc. or the costs of production) is scale-invariant, meaning it works the same for individuals, households, small businesses, global corporations and nation-states.
If the earnings left after paying essential expenses declines while the debt and cost of servicing the debt rise, the entity goes bust and collapses in a heap. For households, as inflation stripmines the purchasing power of their earnings, they increasingly turn to debt to fill the gap between the cash that’s available to spend and what they desire to spend.
