by Calculated Threat on 6/09/2025 01:49:00 PM
Early in February, I expressed my “rising concern” concerning the unfavorable financial impression of “govt / fiscal coverage errors”, nonetheless, I concluded that submit by noting that I used to be not presently on recession watch.
Final month Warren Buffett mentioned:
“We needs to be seeking to commerce with the remainder of the world, and we should always do what we do greatest, and they need to do what they do greatest … Commerce shouldn’t be a weapon.”
Within the brief time period, it’s principally commerce coverage that may negatively impression the financial system. Nonetheless, there different features of coverage that bear watching.
Right here is among the knowledge I am watching.
Housing: Housing is the premise of one in all my favourite fashions for enterprise cycle forecasting.
This graph exhibits the YoY change in New House Gross sales from the Census Bureau. Presently new house gross sales (primarily based on 3-month common of NSA knowledge) are up 3% year-over-year.Often when the YoY change in New House Gross sales falls about 20%, a recession will comply with. An exception for this knowledge collection was the mid ’60s when the Vietnam buildup stored the financial system out of recession. One other exception was in late 2021 – we noticed a big YoY decline in new house gross sales associated to the pandemic and the surge in new house gross sales within the second half of 2020. I ignored that downturn as a pandemic distortion. Additionally word that the sharp decline in 2010 was associated to the housing tax credit score coverage in 2009 – and was only a continuation of the housing bust.
The YoY change in new house gross sales in late 2022 and early 2023 urged a potential recession. However as I famous earlier, I used to be capable of look previous the pandemic distortion and was capable of predict a pickup in new house gross sales because of the low stage of present house stock and since homebuilders might supply mortgage incentives that might considerably offset the sharp improve in mortgage charges.
There aren’t any particular circumstances now, and if this measure falls to off 20% a recession appears possible.
Yield Curve: The yield curve is a generally used main indicator. I dismissed it when the yield curve inverted in 2019 and once more in 2022. Each instances dismissing the yield curve was appropriate (the recession in 2020 was clearly because of the pandemic, so we’ll by no means know if the yield curve didn’t predict a recession in 2019).
Here’s a graph of 10-12 months Treasury Fixed Maturity Minus 2-12 months Treasury Fixed Maturity from FRED since 1976.
Heavy Truck (and Automobile Gross sales): One other indicator I like to make use of is heavy truck gross sales. This graph exhibits heavy truck gross sales since 1967 utilizing knowledge from the BEA. The dashed line is the Might 2025 seasonally adjusted annual gross sales charge (SAAR). Observe: “Heavy vehicles – vehicles greater than 14,000 kilos gross automobile weight.”
Heavy truck gross sales have been at 446 thousand SAAR in Might, down from 457 thousand in April, and down 7.9% from 484 thousand SAAR in Might 2024.
Often, heavy truck gross sales decline sharply previous to a recession and gross sales have been OK in Might.
And light-weight automobile gross sales have been okay in Might after surging in March and April as consumers rushed to beat the tariffs.
Gentle automobile gross sales in Might (15.65 million SAAR) have been down 9.4% from April, and down 1.1% from Might 2024.
Unemployment: Two different concurrent indicators are the unemployment charge (utilizing the “Sahm Rule”) and weekly unemployment claims.
Here’s a graph of the Sahm rule from FRED since 1959.
The Sahm Rule was at 0.27 in Might.
And weekly unemployment claims at all times rise sharply at the start of a recession (different occasions – like hurricane Katrina – may cause a short lived spike in weekly claims).
As I famous earlier, I am undecided learn how to estimate the financial injury attributable to these tariffs. They usually may simply go away (nobody is aware of). There are additionally boycotts of U.S. items and fewer worldwide tourism primarily based on each the tariffs and the inflammatory rhetoric of the present administration.
by Calculated Threat on 6/09/2025 01:49:00 PM
Early in February, I expressed my “rising concern” concerning the unfavorable financial impression of “govt / fiscal coverage errors”, nonetheless, I concluded that submit by noting that I used to be not presently on recession watch.
Final month Warren Buffett mentioned:
“We needs to be seeking to commerce with the remainder of the world, and we should always do what we do greatest, and they need to do what they do greatest … Commerce shouldn’t be a weapon.”
Within the brief time period, it’s principally commerce coverage that may negatively impression the financial system. Nonetheless, there different features of coverage that bear watching.
Right here is among the knowledge I am watching.
Housing: Housing is the premise of one in all my favourite fashions for enterprise cycle forecasting.
This graph exhibits the YoY change in New House Gross sales from the Census Bureau. Presently new house gross sales (primarily based on 3-month common of NSA knowledge) are up 3% year-over-year.Often when the YoY change in New House Gross sales falls about 20%, a recession will comply with. An exception for this knowledge collection was the mid ’60s when the Vietnam buildup stored the financial system out of recession. One other exception was in late 2021 – we noticed a big YoY decline in new house gross sales associated to the pandemic and the surge in new house gross sales within the second half of 2020. I ignored that downturn as a pandemic distortion. Additionally word that the sharp decline in 2010 was associated to the housing tax credit score coverage in 2009 – and was only a continuation of the housing bust.
The YoY change in new house gross sales in late 2022 and early 2023 urged a potential recession. However as I famous earlier, I used to be capable of look previous the pandemic distortion and was capable of predict a pickup in new house gross sales because of the low stage of present house stock and since homebuilders might supply mortgage incentives that might considerably offset the sharp improve in mortgage charges.
There aren’t any particular circumstances now, and if this measure falls to off 20% a recession appears possible.
Yield Curve: The yield curve is a generally used main indicator. I dismissed it when the yield curve inverted in 2019 and once more in 2022. Each instances dismissing the yield curve was appropriate (the recession in 2020 was clearly because of the pandemic, so we’ll by no means know if the yield curve didn’t predict a recession in 2019).
Here’s a graph of 10-12 months Treasury Fixed Maturity Minus 2-12 months Treasury Fixed Maturity from FRED since 1976.
Heavy Truck (and Automobile Gross sales): One other indicator I like to make use of is heavy truck gross sales. This graph exhibits heavy truck gross sales since 1967 utilizing knowledge from the BEA. The dashed line is the Might 2025 seasonally adjusted annual gross sales charge (SAAR). Observe: “Heavy vehicles – vehicles greater than 14,000 kilos gross automobile weight.”
Heavy truck gross sales have been at 446 thousand SAAR in Might, down from 457 thousand in April, and down 7.9% from 484 thousand SAAR in Might 2024.
Often, heavy truck gross sales decline sharply previous to a recession and gross sales have been OK in Might.
And light-weight automobile gross sales have been okay in Might after surging in March and April as consumers rushed to beat the tariffs.
Gentle automobile gross sales in Might (15.65 million SAAR) have been down 9.4% from April, and down 1.1% from Might 2024.
Unemployment: Two different concurrent indicators are the unemployment charge (utilizing the “Sahm Rule”) and weekly unemployment claims.
Here’s a graph of the Sahm rule from FRED since 1959.
The Sahm Rule was at 0.27 in Might.
And weekly unemployment claims at all times rise sharply at the start of a recession (different occasions – like hurricane Katrina – may cause a short lived spike in weekly claims).
As I famous earlier, I am undecided learn how to estimate the financial injury attributable to these tariffs. They usually may simply go away (nobody is aware of). There are additionally boycotts of U.S. items and fewer worldwide tourism primarily based on each the tariffs and the inflammatory rhetoric of the present administration.
