The big headline today was December’s retail sales report that was downright awful. Retail sales fell 1.2% in December, which was the biggest one-month drop since September of 2009. Keep in mind, one bad report doesn’t make a trend, but it was enough for Wall Street to mark down their expectations for GDP during the 4thquarter. For example, JPMorgan cut its forecast for 4thquarter GDP to 2%, down from 2.6%.
This morning also provided a sneak-peek into the health of the labor market when the Department of Labor released their weekly jobless claims for last week. The number came in at 239,000; an increase of 4,000 from the previous week. In isolation, this means virtually nothing. However, the 4-week moving average of jobless claims, which is a component within our Business Cycle Indicator, bottomed in September of last year and now appears to be in a uptrend.
Our Business Cycle Indicator tracks the rate of change in jobless claims, and other indicators, to determine when a recession is likely. Thus far, there is nothing to be alarmed about in this data. However, the seeds are being sowed for a more slowing within the economy.
Our Business Cycle Indicator has been warning about slowing growth since October 2018. We still think that we are experiencing a “Growth Scare” similar to 1998 and 2015. However, that could change if incoming data continues to deteriorate.
Our Business Cycle Indicator is a composite of the yield curve, high yield bond spreads, investment grade bond spreads, jobless claims, building permits, and heavy truck sales. This composite goes all the way back to 1968 and would have provided a warning prior to every recession that occurred since.
So, while todays data was not good, it does not suggest a recession is imminent. We have a close eye on the incoming data for signs that our view should change.