China’s industrial metals exports are rising
India tries to accelerate coal imports ($BBG)
U.S. truckers hit by rising diesel prices ($WSJ)
Office return stalls in tight job market ($BBG)
U.S. FINANCIAL CONDITIONS for households and businesses wanting to borrow or raise capital tightened again last week and are the most restrictive since the first wave of the pandemic in 2020 and before that 2012:
U.S. INFLATION is becoming more deeply embedded in the economy with service sector prices climbing at an annualised rate of almost 8% over the last three months, the fastest increase since 1990 and before that 1982.
Some commentators have dismissed the increase inflationary pressure as a problem of supply bottlenecks rather than too much demand. Separating the supply side and demand side this way is an analytical error. Insufficient supply is the same as excess demand and vice versa.
But the data also shows inflationary pressures have spread from the energy- and raw materials-intensive merchandise sector to the labour-heavy services sector. Rapid service sector price increases usually signal the imminent arrival of a recession:
BUSINESS CYCLE turning points and phase transitions are hard to spot in advance or in real time in the official statistics because most data is published with a lag of 1-3 months. Latency in the statistical system conceals the much more rapid change in business conditions. But it may be possible to detect mid-cycle slowdowns and end-of-cycle recessions much closer to real time by focusing on the behaviour of key companies.
In presidential address to the American Economic Association in 2017, economist Robert Shiller characterised a recession as “a time when many people have decided to spend less, to make do for now with that old furniture instead of buying new, or to postpone starting a new business, to postpone hiring new help in an existing business.”
Decisions to reduce spending, postpone expensive purchases, defer or freeze hiring are all indicators of a potential slowdown. Sometimes the reasons will be company or household specific. But if there are enough companies and households behaving in the way the likelihood of an imminent slowdown is much higher.
In that context, these recent news headlines are all indications economic momentum is slowing:
- “Uber to cut back on spending, treat hiring as a privilege” (Wall Street Journal, May 9)
- “Twitter freezes hiring as two senior executives leave the company” (Wall Street Journal, May 12)
- “Amazon’s net loss prompts query: has it built too many warehouses?” (Reuters, April 29)
This is not conclusive proof the major economies are entering a slowdown, and it cannot show whether it will be a mid-cycle soft patch or something deeper that qualifies as a recession, but the headlines are strongly suggestive pattern.