Fed Projecting a Mild Recession

Hey everyone and thanks for jumping back Into the macroverse today we're going to Talk about the fact that the Federal Reserve in their most recent fomc Minutes has suggested that we will Likely go into a mild recession later This year we're going to discuss are the Indicators aligned with that potential Outcome if you guys like the content Make sure you subscribe to the channel Give the video a thumbs up and check out The sale on into the crypto various Premium at into the cryptiverse.com Let's go ahead and jump in so I'm not Going to spend a ton of time dissecting Everything in this report but one of the Things that I think should draw your Attention is this sentence here given Their assessment of the potential Economic effects of the recent banking Sector developments the staff's Projection at the time of the March Meeting included a mild recession Starting later this year with a recovery Over the subsequent two years all right Now this is a shift it is not something That they've openly acknowledged before This Um so it is interesting to see them Talking about now they're they're that They're projecting out a mild recession To in fact start later this year the Other thing that I wanted to mention About the minutes that were released

Before we get into the charts is the Main thing that the main risk that it Seems like they they saw was inflation Staying High over potentially hiking too Much and and doing damage to the economy So they still see the greater risk is is Inflation Um so what I want to do now is go to the Charts and see does the data support a Theoretical recession later this year Now the first thing I want to mention Before we get too far into this because We're actually going to go through quite A few charts here Um so it's probably going to be a longer Video I don't really make any apologies For it Um it's important to cover what we can And I I know there's a lot of a lot of sort Of Knee-jerk reaction type comments that Might occur and and it could go Something like well we were in a Recession last year and the other Comment is we're already in a recession Right So those are the two most frequent Comments that I see and those comments Are not falling on deaf ears I I Understand you know the sort of the Sentiment there but I think that by the Time we get through this video it will Be obvious at least in my mind it's

Obvious but hopefully to a few other People it'll be more so obvious why we Haven't been in a recession over the Last you know year or so Um and and I I know that looking at Things like real GDP and whatnot would Lead many to believe that but by the end Of this video I hopefully I've I've Convinced you Um Now what we're going to start with is We're going to start with with GDP all Right and and we'll go straight to the The thing that people will use to say That we already had a recession last Year and or at least use that to claim That we're in a recession if you look at Real GDP and you look at at say the Quarterly change the quarterly Percentage change you'll note that we Had two consecutive quarters of negative GDP last year in 2021 in 2022 however if You were to use that to argue that we're In a recession now that argument breaks Down very quickly and the reason for That is because we've been putting in New highs in Real GDP despite the slump In early 2022. so even if you're in the Camp that says we had a recession you Know we're in a recession because we had Two consecutive quarters of negative GDP You know that ended a long time ago and We're still putting in new highs in Real GDP

So usually Um you know so you usually you're not Putting in new highs in Real GDP when You're in a recession all right now the Other way to look at this though which I Think is probably a bit more interesting Is is to look at the yearly change look At the yearly change of of real GDP when You look at the yearly change the yearly Percentage change of the real gross Domestic product you get something that Looks like this now the gray shaded Regions are recessions okay and what You'll notice is that it has a pretty Good track record of identifying Recessions there was even a time over Here where it didn't even technically go Negative and we still had the.com Recession which was a pretty you know a Pretty bad one So Um well it was a pretty bad one in terms Of in terms of the drawdown that the s p Had from the all-time high but when you Look at this when you look at it this Way the year over year change what You'll notice is that currently it's Still positive at least for Q4 I mean Again it takes a long time to get to get These things updated just because it Takes forever for the data to come in But at least as of Q4 2022 this metric Would not necessarily say that we've Been in a recession in fact I mean it

Still shows that we've had Positive Growth now you might say well how can it Be positive growth if this is coming Down Right well remember this is a change When when you see this coming down as Long as it's zero or as long as as long As it's above zero You're still seeing growth it just means That the growth is diminishing it's like It's like when you have inflation just Because you have disinflation doesn't Mean that the prices are coming down of Goods and services it just means they're Not going up as quickly so this metric Here the yearly the yearly change in Real GDP is going the the the growth is Slowing down but it's still technically Growth we have not entered into a a Truly contractionary period just yet but With that said we seemingly are heading In that direction and so going back to The FED minutes of predict of projecting Out a recession later this year this Metric would be in line with something Like that one of the things that I've Said a number of times is that I think We'll have a recession and sort of the Latter part of this year or early 2024 At the latest Is my General is my general assessment And and looking at these things again Lead me to believe that that's going to Be the case because we still see you

Know we still see a lot of demand Slowing we are of course seeing Inflation come back down uh but that's Also sort of on the back of of just Seeing lower levels of demand another One that we can look at is real GDP per Capita now if you look at real GDP per Capita and look at the quarterly change You'll see something very similar right Two consecutive quarters of negative GDP You go over to the yearly time frame Sort of the yearly change in in Real GDP Per capita and you'll see a very similar Thing look how clean this chart is every Time that it's gone negative it is Corresponded to a recession every single Time And and you might say well are we neg is It negative right now No it's not it doesn't mean that it's Not going to turn negative but currently We are still technically in an area of Of growth even though that growth has Fallen down quite a bit so if you were To look at a percentage you can see that The growth year over year is down to 0.431 which has gone down a lot from say Five percent just you know a year and a Half ago or so so this metric is Trending in the recession Direction but It's not technically a recession just Yet so that's the point that we you know I'm continuing to try to make is that Yes there's indicators that suggest

One's coming but these indicators would Also suggest it's not here just yet and If you look at the Imports of goods and Services this is another metric that I I Think is interesting and look at the Yearly change on that what you'll notice Is that oftentimes when you see this go Negative it corresponds to a recession Not always though so there's some Metrics that are have better hit rates Than other ones this metric does not Always correspond to a recession if it Goes negative however if it goes Negative it can at least correspond to You know stunted growth for a while or Stunted gains in the S P 500 but Oftentimes when you see it come down and Go pretty deep in terms of in terms of The contractionary territory it has not Been a good thing for risk Assets in General and you can see right now that It's coming down pretty quickly Furthermore it seems to be Accelerating the rate at which it's Coming down All right you can kind of see that this This drop off here was some 22 percent To 15 but the last one was a drop from 15 all the way down to five percent so Again Is it in contractionary tear is it in Contraction or territory right now no is It heading that direction by the end of The year probably you could also look at

The exports of goods and services and Look at the yearly change there as well And you'll come to a pretty similar Conclusion I'm not going to spend a ton Of time on each chart but I will just Simply pause here for a moment in case You just want to pause the screen and Look at and look at it and how it Compares with the S P 500 and prior Recessions and then you can also look at The net export of goods and services Look at the yearly change on that And this one's of course the reverse Right it's when it goes positive uh that Is typically not a good thing and you Can see that it's already done that now That now that we've talked about you Know some of the growth statistics I Want to now go into actually some of the Some of the other interesting metrics There's there's one that I was looking At earlier today and it's the Real gross Private domestic investment and if you Look at the yearly change in that metric You will see that historically when you See it go into negative territory Contractionary territory it corresponds To a recession not every time as there's An example here in 2016 there's also an Example here in 1951 but again during Those periods it only went slightly Negative in terms of a percentage change When you look at the percentage change Of where we are right now it's currently

At negative 3.84 percent so this is not Going in the right direction and this Metric would suggest that we are getting Pretty close to contractionary territory Recession territory again a lot of these Metrics say we're near it or it's still You know half a year or a year away but They a lot of them don't necessarily Suggest we're there yet this one Suggests we could already be there Um but you also have to take it in the Context of every other metric and and Most of the metrics say we're not in one Right now you can also go look at things Like average hourly earnings and look at The yearly change on that there's not a Whole lot of data for this one but Normally Um you know I mean at least the last Time we saw this come down quite a bit It obviously uh wasn't wasn't really Great for risk assets at least initially But but then but then we we sort of came Out of it and it slowly trended higher As the s p continued to slowly turn Higher right now this is still just Simply going down right I mean we could Clean it up a little bit by applying Maybe a three month estimate to it and You can see it's been a fairly a fairly Steady decline here but it's also fairly Elevated as well I mean the the area That we were at in in 2009 This was this was already much lower

Down right we're pretty high up here in Terms of in terms of percentage growth Um so something to to consider if you Look at real personal income and look at The yearly change in that you will see Recently that it's actually sort of Crossed back above the the zero line Um it doesn't mean it can't roll back Over it did once before so this metric Is is a little bit more optimistic if You look at real personal income Excluding transfer receipts and say look At a monthly change this is what it Looks like but if you look at a yearly Change you'll see that it's when it goes Negative that corresponds to Recessionary periods is it negative Right now no it is not it is it is um Positive right now so this is a metric That would suggest that we're not in a Recession right now right so there's so Many different indicators that we can Look at and of course depending on what Your bias is you'll find evidence to Support your your uh you know what you What you want it to be here's another One this is real disposable personal Income yearly change let's switch this Over to percentage and again normally It's when it starts to go down Um that it's it's not really a great Thing but I mean sometimes it's not even Captured at all right now it's still It's still going up right I mean it came

Down pretty quickly back over here just Not too long ago but since then it's It's actually been moving a little a Little bit a little bit higher this is Another metric that would suggest that Things aren't so bad at the moment Doesn't mean they're not going to get Worse later this year Then we also have real GDP our real Disposable income per capita I'll put That chart there just in case you want To pause the video and and take a closer Look now there are one of the more scary Charts I suppose is the M2 money supply Yearly change okay you know this is Something that is not a very common Occurrence and if you look at the History of this when the money supply is Is dropping like this it's historically Been awful for risk assets in general And Um the biggest Counterpoint to that is To say well yeah it would be bad but we Also just printed a lot of money in a Relatively short period of time so you Could argue that we're more so just say Regressing to the mean right like if you Were to think about this chart Um You could you could sort of look at this Chart and say we were on this sort of Slope here and now we're just sort of Trying to come back down to that level Now if we go below the prior Trend which

Is certainly a risk especially at the Rate at which this is dropping that's Where it could become an issue but again Like these things take a long time to Play out if you look at you know the Total assets held by the Federal Reserve Of course it recently popped up uh but Ever since then it's been starting to Come back down this is obviously just QT We've had it before I mean you can see We had it in 2019 as as well and and When you get into periods like that it Does open up the door for potentially Something to break right now we're still Slowly moving along Um But you know this is something that if It you know if it continues to come down Of course that will uh we'll put Pressure on on the liquidity Um we can we can go look at a few other Things as well uh there's the treasury Let's go look at the treasure yield Curve normally this this sort of Formation here on the yield curve is an Indicator that a recession is coming not That we're in one right now and this is What we talk about time and time again You know you might hear someone say well The yield curves inverted that means We're in a recession actually when we're When the yield curve is inverted it Normally means we're not in one it's It's upon the uninversion that actually

Would dictate when a recession could Theoretically occur again this is what It looks like right now this is what it Looked like in you know just before the The financial crisis this is what what It looked like Um you know before the.com crash right So you can see that when it's inverted It it doesn't mean that we're in a Recession then it's upon the uninversion That actually occurs and a better way to Visualize that would be to look at Treasury yield spreads but before I do That There was an interesting development Recently and that's the the fact that The three-month treasury yield has now Gone above the sixth month if you were To rewind the clock uh just a little bit You can see that I mean even as even as Recently as February the three month was Below the sixth month Um even March right even March the three Month was below the sixth month but now That we're in April the three month is Above the sixth month and sooner rather Than later you'll likely see the the Short end of the curve raise above these As well and and more or less have a Fully inverted yield curve with maybe The exception of of the um you know the Very long end over here but again Something to consider and a better way To visualize this is by looking at

Treasury yield spreads this is a spread On the three month and the ten year what Do you notice when it's inverted like This usually Um yes there's this point here but we Don't really have a lot of data going Before that At least not on this uh at least not on On this chart what you normally see Though is when it's inverted you're not In a recession again the gray shaded Region corresponds to the recession when You're in the inverted part you're not In one it's when when it becomes Uninverted that the recession normally Occurs and right now we're still Trending in this direction meaning it's Becoming more and more inverted Um which is is kind of crazy to think About at what level it is right now Because we haven't seen this invert to This extent at least in 40 years if not Longer so something to consider you also Have the 10-year and the two-year spread As well which has sort of come up a Little bit recently but it also did that You know it also came up in the 1970s And and still still took a while before We actually got into a recession But again it's when it's like this we're Historically not in a recession it's Upon the uninversion that we would Typically get one so you know there's a Lot of things that a lot of indicators

That would suggest that we're not in a Recession right now which is why I think It makes sense that the fed's not saying We're in one right now to say that we're N1 right now would be to say that you Know the economy is is doing very poorly When on the contrary the economy is Still doing somewhat okay when you in Terms of the unemployment rate right I Mean the unemployment rate is still Pretty much at a secular low Um there's there's a few other things we Can look at we can look at this deposits In all commercial Banks we can look at The yearly change on that not really a Great look Um you look at the the percentage change On this not really a great look here uh It's not we haven't really seen I Haven't really seen this before so I Don't really know what to make of it you Can look at deposits in small chartered Commercial Banks you can see that it's Also dropping off of a cliff right now When you look at the yearly change Um if you look at Consumer loans the Yearly change on Consumer loans it's It's starting to Trend down right which Is not a good thing normally when it Starts to Trend down we we risk we run The risk of going into our recession but It's only that that trend is only Recently started Um as as early as or as recently as

Maybe like October or so so not really That only about half a year ago or so And and sometimes Um you know sometimes you'll see this Come down and it doesn't necessarily Mean that the the market cannot rally Right there are times where it comes Down where the market is is still doing Just fine so this metric in and of Itself is not going to be sufficient to Tell you uh what's going you know what's Going on if you look at at Consumer Loans credit cards and revolving plans We can look at a yearly change there It's starting to to roll over a little Bit but Um not not too crazy you have a move Just yet if you look at automobile loans And look at the yearly change there and We'll switch this over to a percent yeah It is starting to come down uh quite a Bit but again I mean you know there's There's examples where it comes down but It doesn't necessarily mean it has to Immediately affect the stock market Right if you if you say apply a moving Average to let's say apply a a 14-week SMA to the weekly change uh this is what It looks like and in this case Um you know it seems like it's almost Like once it starts to go up you run you Run some risk here uh in the market uh The delinquent the here's the Consumer Loans delinquency rate it's starting to

Go up uh which makes I mean it makes Sense because of all the tightening That's gone that's gone on but even then It's still at a relatively low a low Level I mean it's only a two percent I Mean we're just we're just getting back To where we were Um you know in in you know 2016 2017 2018 we're still at pretty low levels Here if you look at business loans and Delinquency rate it's still pretty low If you look at um total or actually Here's an interesting one the net Percentage of banks tightening loan Standards to large and Middle Market Firms it is getting pretty high in line With prior recessions Um if you look at the quarterly change On it and maybe let's look at the yearly Change this is what it looks like right So it is at a pretty high level here in Line with prior recessions and then if You look at the net percentage of banks Tightening loan standards to small firms This is what it looks like pretty much In line with what we saw in Prior Recessions this is what the yearly Change looks like as well I also want to Take a look at smooth recessions Probability indicator which is a again a Dynamic Factor Markov switching model That uses non-farm payroll employment The index of industrial production real Personal income excluding transfer

Payments and real manufacturing and Trade sales to develop a recession Probability model and as of right now it Says the the problem or as of as of um February the probability of us being in A recession was only 0.74 so that's less Than one percent as of February if you Look at this the the the the some rule Recession indicator it says the current Probability of us being in a recession As of March is zero percent this is Because it's based on the unemployment Rate and the unemployment rate is still At a relatively low level If you look at the r uh the the rgdp Recession indicator Um you'll see that it is it's come back Down namely because the you know the the Economy is picked back up recently if You look at the composite leading Indicator it's heading in the wrong Direction especially if you look at say Things like the monthly change Um normally when it starts to you know Sort of roll back over here it's it's Not at least when you look at say like The yearly change or something like this Is not normally a good thing for for Risk assets when it's doing something Like this right like when it's coming This deep into into sort of this regime But it is starting to curl up a little Bit here Um so we'll see you know we'll see what

Ultimately uh transpires from that if You look at the National Financial Conditions index We are starting to we are starting to See Financial conditions get a bit Tighter as you can see over the last Several weeks they've sort of come up Quite a bit they are leveling off Potentially a little bit here but still Um you know Financial conditions have Gotten a little bit a little bit tighter Ever since the the banking issues back In March we also have the St Louis fed Financial stress index which popped up Fairly quickly a few weeks ago due to That you know that meltdown in the Baking sector but it's actually come Back down relatively quickly as well Um and then of course some of the more Important things are things like the Unemployment rate right the unemployment Rate is you know it really shows us that We are Norm we are pretty much at a Secular low now that doesn't mean that We can't we can't see it go up but at This point I don't think you can look at An economy with an unemployment rate of Three and a half percent and say that It's in a recession right this is the Biggest issue with the people that would Say that we were in a recession in 2022 Is you know no one's going to look at This in the future and say that 2022 was A recession when you have or at least

Most people won't when you have the Unemployment rate it like you know Secular lows for the business cycle it Would only be upon the sort of the rise In the unemployment rate that you could Start to think about that Um At least you know at least in my opinion We also have people not in the labor Force we can look at the yearly change On that and see if there's anything Interesting I will let you pause pause The video and and look at that if you Want we also have things like job quits Uh if you if you look at say the the job Quits level you can see that it is Trending down normally when it Trends Down it it can lead you into a recession And it's essentially been trending down For about a year now if you look at the Job quits rate you'll see something very Similar and by the way if you look at The job quits level you can actually Look at say total private and see that It's trending down we can look at essay Construction and see that it's more or Less trending down with some spikes in There you could look at manufacturing And see that it's trending down but it's Recently popped back up a little bit in In recent months we can look at durable Goods and see that it started to Trend Down but recently popped back up at the Recent report non-durable Goods very

Similar they're very similar types of Stories right Um initial claims has started to go up Recently which is is something that is Worthwhile to watch because initial Claims typically can lead the Unemployment rate we also have continued Claims which is continuing to go higher And normally when it goes higher it can Lead you into recession it has been Going higher for quite a number of Months now the Counterpoint though is Despite it's been going higher it still Is still it's still at a pretty low Level right this is this is almost just A reversion back to the mean at this Point Um so that's a you know something to Consider if you look at the Michigan Consumer sentiment index we were at a Pretty low level over here and it's uh It's actually starting to get a little Bit better right now And and so on and so forth right I mean We could talk about this all day I'm Sure we can go look at total vehicle Sales if we want to see what that looks Like maybe look at the yearly change There Um And the monthly change and and just we Can look at what it you know just what It looks like right now I mean it's it's Not really giving a clear signal right

It's just sort of very very stochastic Right just sort of all over the place And and not really giving anything Specific we can look at total industrial Production the total industrial Production index maybe look at the Monthly change or maybe the yearly Change there and see that it is trending Down but again even though it's trending Down it's still technically in positive Territory so once it goes negative Though we could find ourselves in a Recession So you know I guess what I'm trying to say by Looking at all these indicators is that Does the feds does the fed's Outlook Make sense within the context of the Indicators that we have I would say that It does I would say that we were not in A recession in 2022 because the Unemployment rate was still at a secular Low and it still is today I would say That using only things like real GDP to Talk about a recession is probably not The best the best approach Um But there are a lot of metrics that Would lead us to believe that a Recession could come you know later on This year and that's something that we Have to you know that we have to Consider and you know if you're in the Camp that says we won't ever you know

We're not going to have a recession Right like if you're in that camp then That's a fun camp to be in I mean like There's always a chance that the FED Avoids I mean there's always a chance They just decide to go print five Trillion dollars and of course you know The economy would pick back up and so With inflation then we just have to kick The can down the road a few more years But if you're in that camp we still have To we still have to deal with the Inverted yield curve at some point right And normally when we come out of that we Have a recession and and we have to deal With the fact that the you know the Initial claims are going up uh continue Claims are going up if we were to go Take a look at the workbench uh just for A minute And and perhaps what we'll do is we'll Add on uh some of these metrics right so Let's add on recessions okay and then What I want to add on is initial claims Okay so we have initial claims And then I want to add on continued Claims And then I want to add on the Unemployment rate Because the unemployment rate is really Going to dictate I think when the Recession actually starts what you'll Notice is that you know continue claims And initial claims they go up before the

Unemployment rate does right like so Normally those are leading indicators They tend to move before the Unemployment rate moves but still now Right we're seeing these go up but the Unemployment rate really hasn't moved so The point is is like you know just Because it hasn't moved doesn't mean That it's not going to start moving Within the next six months or so So I continue to to sort of think that We'll probably have a recession later This year or early next year at the Latest and I I could see it lasting Um I mean it could last a few quarters But I I imagine that it won't it Probably won't be as deep of a recession As um as as some people are calling for Right like I know there are calls for Like depression level territory by Looking at things like the money supply But I think the Counterpoint to that is That well the money supply is more so Just reverting to the mean it could Overshoot it which could lead us into That recession but I don't think that You know I don't think we're going to Head into some like 10-year depression Or something like that That's my general take on on you know on The market in terms of are we actually Heading towards a recession or not I Think that we are not in one now I think that there's a lot of indicators

That suggest we could be heading to one By the end of this year and and I I Think we'll leave it at that and Hopefully hopefully you enjoyed the Video I know we covered a lot of Different a lot of different metrics and Um and we will we will continue to Follow them but of course I don't make These videos that frequently because we Only get data for a lot of these charts Like once a month some of them are Weekly but a lot of them are just like Monthly or even quarterly so it's not Really that useful to provide that Frequent of an update but perhaps we'll Do another update Um in a few months or so and kind of see Where everything is if you guys like the Content make sure you subscribe to the Channel give the video a thumbs up and Remember we do have any of the Cryptographers premium at into the Cryptobears.com we have a sale going on You can access Um this sort of stuff and look at a lot Of these different indicators thank you Guys for tuning in I'll see you next Time bye

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