Global Growth Falters – Classic Late Cycle Economy
The latest catalyst for stock market weakness is global growth. Global growth weakness matters a lot more when the American economy is also weakening.
Fiscal stimulus delayed this weakness from impacting America for the first 3 quarters. But unfortunately, global growth has fallen further. And, the fiscal stimulus is running out of juice.
The labor market can’t be the savior of the economy because once businesses start faltering, job creation will stall. Q3 was a classic example of a late cycle economy. The labor market is a lagging indicator.
It drove consumer spending, but won’t do so once it starts following growth lower.
With that idea in mind, the preliminary November consumer sentiment report showed the holiday shopping season will likely be strong.
It fell from 98.6 to 98.3 which beat estimates for 98. That’s a great number as 2018 is about to be the best year for consumer sentiment since 2000. As you know, the 2001 recession followed that great year.
This shows how the consumer is the strongest right before recessions. The disconcerting part of this report is the current conditions index. It was up slightly to 113.2 and the expectations index fell 1.6 to 88.7.
The difference between the current conditions and expectations index is widening. That has been a predictor of recessions in the past 2 cycles.
Expectations for 1-year inflation fell 0.1% to 2.8%. Expectation for 5-year inflation was up 0.2% to 2.6%. Inflation expectations are low which in tune with the CPI and PCE reports from September.
As I have mentioned, lower oil prices will increase consumer spending this holiday season. If the Fed decides to stop hiking rates because of low inflation, this cycle will last a few more quarters.
However, the Fed has signaled it will stay the course with rate hikes.
Global Growth Falters – Italian Economy Weakening
The weakening global economy is partially responsible for the coming slowdown in America. First, let’s look at the weakness in Italy.
