Last week we saw a negative real GDP (inflation-adjusted gross domestic product) print come out of the Bureau of Labor Statistics (BLS). This was the second negative quarterly GDP data point in a row. Many in the investment community use a simple shorthand for what constitutes a recession – more than one consecutive quarter of declining economic growth as measured by real GDP. This is just convention though. We are getting to the Rorschach test phase for the economic climate, where what is happening right now is perceived as just slowing growth or a full-blown recession based on the observer’s prior beliefs. Who clears up the confusion and officially tells us we are in a recession? And, when do they tell us we are in a recession?
Officially, the National Bureau of Economic Research (NBER) is the organization that tells us when a recession happens in the United States. But they generally wait quite a while to call a recession due to the vast amount of data that must be collected and analyzed to give a true picture of the state of the economy. GDP prints (and most other economic data) are revised upwards or downwards in the months after their initial release date, so calling a recession in real time can be tricky.
What does the NBER look at to determine a recession? Real personal income, non-farm payrolls, real personal consumption expenditures, real manufacturing and trade sales, household employment, and industrial production. As we can see in the chart below sourced directly from the St. Louis Federal Reserve’s online database (FRED), not everything is pointing down yet.
Are we in a recession? Looking at raw GDP numbers, it does meet the simple criteria. Though when viewed from an employment standpoint we are still not at recessionary levels. From a consumption perspective this does not feel like a recession, yet. Consumer expectations are low, and people are expecting something bad to happen. The stock market has been behaving like a recession was coming for the first six months of 2022. We follow price levels, as it is really what people care about. That is why we have made defensive moves over the course of the year. Whether we are in a recession or not is something best left to NBER, we will follow the money.
Past performance is no guarantee of future results. Trend signals are proprietary research of EWM Investment Solutions, a wholly owned subsidiary of Executive Wealth Management, LLC. Data source for returns is FactSet Research Systems Inc. This chart is not intended to provide investment advice and should not be considered as a recommendation. One cannot invest directly in an index. Executive Wealth Management does not guarantee the accuracy of this data.
Model Updates
On Friday, July 29th, the EWMIS Emerging Growth Companies equity model re-balanced a couple of its holdings and slightly increased its allocation to cash. There were no other trades in EWM Investment Solutions models during the week ending on July 30, 2022. All major equity market sectors are currently in a long-term unfavorable trend, and the Asset Allocation models remain at their lowest possible tactical equity exposures, with domestic stocks favored over international shares.
Quote of the Week
Spending money on time is a good investment. One of the unsung reasons a lot of people choose to work with a financial advisor is because they value their time.Managing a comprehensive financial plan that involves portfolio management, estate planning, insurance, taxes, budgeting and all of the decisions that come about when life intervenes can be time-consuming.
Some people don’t mind doing all of that on their own but others would rather spend their time doing stuff they actually care about.
Time is the most valuable asset.
Excerpt from a July 31st post on Ben Carlson’s financial blog, A Wealth of Common Sense, about how people spend their time as they age.
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Returns are calculated as indicated below with reinvested dividends not considered except for the Barclays U.S. Aggregate Bond Index. Data source for returns is FactSet Research Systems Inc. The London Gold PM Fix Price is used to calculate returns for gold.
1 Week = closing price on July 22, 2022 to closing price on July 29, 2022
1 Month = closing price on June 29, 2022 to closing price on July 29, 2022
3 Month = closing price on April 29, 2022 to closing price on July 29, 2022
YTD = closing price on December 31, 2021 to closing price on July 29, 2022
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