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Eric Basmajian

lines on the record: 96
first: 2023-09-12
most recent: 2023-09-12
sittings or episodes: 1
sources: podcast

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“Yeah, so what I wanted to jump in there and say is I have a slightly different view of why high interest rates cause recession. You took it from the perspective of existing money that's out there, existing borrowers that are out there and the stresses that they'll experience from maybe a refinance or something like that.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, there's been a lot of money printing just because a lot of those losses have been swallowed by the Federal Reserve. And yeah, so what do you say about fiscal stimulus, both in the terms of fiscal deficits, but also just the fact that when interest rates are higher, there's more money printing to pay off?”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Not necessarily disagreeing with you, but it's that high interest rates cause pain. Often those are on borrowers if it's short-term floating rate debt. But if it's long-term fixed rate debt made at low rates, it's actually the pain is felt by the lenders. So it's felt by the banks. It's felt by people who bought a long, a lot of long-term bonds, individuals, foreign countries who did, and the Federal Reserve, who is owning all of this long-term paper. And in my mind right now is going through the idea that you've listened to the shows, you've heard me say this idea, you're well prepared.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, General Electric up 72%. So it's really the magnificent one kind of magnificent two Navidia and Meta Hulti. So you got some home builders and stuff and then financials, that sector I'm going to really talk about the banks, economically sensitive. So them selling off does not indicate a lot of health about the economy. However, the credit quality, the realized losses on bank balance sheet, it's almost entirely mostly due to interest rate losses. So they bought bonds at a time when the economy, bonds were pricing in a weaker economy and the economy outperformed and the Fed raised rates 525 basis points. And as a result, their bonds collapse in value. So it's, I feel like it's if you say, oh, in 2007, that's when XLF or the bank index started to fault or yes, the bank index has faltered this year, but it's for entirely different reasons. And that's a key critique of the traditional Ohio interest rates cause of recession, which”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“So I think bear markets end and bull markets begin. A very narrow way. It often is as it was on March 23rd, 2020. Apple, Google, NVIDIA leading the charge. And then you have the more mid-caps and then the small caps. And then suddenly that's when all the specs go public on the TV channels. And that's the way it works. I wouldn't disagree with you that this rally has been somewhat narrow, but a very interesting gentleman on Twitter. He made an interesting point that actually the magnificent seven, like Google and Apple are not in the top 20 performance performers in the SP 500. And you got like Royal Caribbean. cruise line company up 100% this year. I noticed it.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Industrial based commodities like copper perform well. And you also see industrial or commodity-centric currencies perform well, like the Australian dollar, New Zealand dollar, Chilean peso. And what we're seeing is these cyclical currencies are getting hit very hard, often making new cyclical lows. The industrial commodities like copper, zinc, and a broader basket like rubber and cement that are a little harder to track, those haven't really been increasing. In some cases, they've been declining. And you haven't seen a huge outperformance of small and micro cap and more economically sensitive stocks. So the rally is enormous and it certainly has dragged up the S&P 500, which at the end of the day is a huge barometer for most people in asset markets. But cross-asset class.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Rally has been extraordinarily forceful. It's probably what been one of the most breathtaking rallies I've seen in the technology sector specifically. But as I'm sure many of your previous guests have pointed out, it's extraordinarily narrow to just a couple of these stocks. And when you look at any index that doesn't contain the big five, they actually are still 20% or even 30% from their all-time highs not really rallying at all, not indicative of an economy that is accelerating. We could also check other asset classes. So when the economy enters a cyclical upturn, there is generally a broad group of assets that perform similarly. If the economy was entering a new cyclical upturn, let's say from 2016 to 2018, not only do you see small and micro cap stocks perform, usually outperform, but you also see”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“So, what I would say is that obviously a super large part of the equity performance, almost all of the equity performance has really been concentrated in seven large technology stocks, which are not that cyclical if you look at the way that they've performed over the last several years. They just eat a larger and larger share of total GDP. But if you look at any index that doesn't really contain those sectors, so IWC, microcaps, IWM, small caps, we're talking about 2,000 stocks here, not a small group. Those sectors remain 20 to 30 percent from their highs. They haven't really rallied at all. In past cyclical upturns, it is those small and micro cap stocks that actually outperform the large mega cap blue chip stocks. So to me, this”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“What have you made of the new bull market in stocks? We're very close to the highs reached, I believe, in December of 2021 or January of 2022. And yes, it doesn't seem like it's slowing down. The outperformance of stocks, which are economically sensitive to bonds, which are the opposite, has been very dramatic, especially the long end of the yield curve. Bond yields have gone out. If you are someone, I don't know if you are, who says I listen to what the market is, the market is forward-looking, telling me what the economy is doing, if the bond market was rallying while the stock market was crashing, that would say, hey, the market's worried about a potential recession. But we have the opposite. A buoyant stock market and bond yields selling off, so yields up.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“I can't give you a gauge of where it will stop because a lot of that will depend as you've been documenting how do they handle the commercial real estate issue? How do they handle the response to unemployment rate that continues to go up? If the unemployment rate goes from three and a half to four and they don't ease policy, that would potentially lead to an even harder landing as opposed to maybe a quicker reaction function where they start to lower interest rates faster. All of these things are unknown before we go into it. But I would say that in principle, it doesn't matter that much because I'm always trying to provide a rolling forecast of what's going to happen over the coming eight months or the coming 12 months. And directionally, I think the direction we should be looking is that the unemployment rate should be going up from here.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“I wish I had the answer to that question. It's really hard in the process that I have, which is a sequential business cycle process, to get specific on levels because so much of it does depend on what shocks come along the way. So for the best example of that would be in July of 2008, the economy was in a recession as we now know with historical certainty. However, at that time Nobody had any idea the economy was in recession and it was actually quite mild based on coincident indicators and things like that. Of course it then became quite a brutal recession because of various shocks and externalities that happened as a result of the mild recession that was underway. So it I certainly believe that the unemployment rate will be heading up through the rest of the year and into 2024.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“That's right. So if it goes from 10 to 9, not growth rate, if the index level, or just think about it as payrolls, let's talk about it as a tangible concept like payrolls. If there's a hundred people in the economy and you're adding 10 people a year, you're having 110 people the next year, right? If you add eight people the following year, now you have 118 people, the rate of change is slowing down. You're adding incrementally less people than you were adding the year before. That's not a recessionary concept. The recession is if you go from 118 employees to 116 employees. So an outright decline in the number that you're adding rather than just adding them at a slower pace.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“So if the growth rate of the economy goes from 10 to 2, the economy won't be in a recession. But if the growth rate of the economy goes from plus 2% to negative 1%, the economy is likely in a recession, even though the rate of change was smaller, it was the actual level that declined.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Leading indicators and the start of the level of these cyclical indicators has actually been outright contracting. So it's no longer just a rate of change issue. It's actually a levels issue, which is much more of a, which is actually the only definition of a real recessionary contraction. Recessions are level concepts, not rate of change concepts.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“So your point is super well taken that the peak in the growth rate cycle certainly occurred in 2021. And certain things in the world changed in 2021 as a result of that peak in growth. For example, a large part of the technology bubble did peak NFTs, meme stocks, all of this type of stuff, which was absorbing trillions of dollars worth of assets at one point. All of that stuff did peak. There was changes in the relative performance of assets and things like that. But as far as a recessionary indicator, we have to be focused more on the level versus the rate of change or rate of direction of growth. The point that I would make is that since 2022, Q4 of 2022, this has moved beyond a rate of change issue because the level of all of these”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“For example, the level of building permits is 20% below its peak. Not the growth rate of building permits, the actual level of building permits is substantially below its peak, which is why that's translating or hasn't yet, but is starting to translate to a level of residential construction activity that is starting to come down. The start of the actual level of residential building employments going down for the last three or four months. So we are seeing job losses in the residential building sector as a result of that level of building permits come down. Another example could be the level of new orders. So we can look at the growth rate of new orders or the level of new orders and the level of new orders has been coming down as of the last several months as well.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Right. Extremely valid point. And what I would say is that we would have to both look at the rate of change and also the level. So when we're looking about at the conference board leading index as an example, the rate of change peaked probably in 2021. The rate of growth peaked probably in 2021, if my memory is correct, the level has been declining since the growth rate has turned outright negative. So not only has the growth rate gone from plus 15 to plus 2, we're now in negative growth rates. So the actual level of the index is starting to go down and has been actually for quite some time.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“What about rate of change metrics? And I'm just making up numbers here that if spending from year two to year one went up 20% and then spending from year three to year two went up 8%, that is a huge decline in the growth rate of spending. So that would be a perhaps a red bar, a negative indicator, but that's still a percent spending. That's still a booming economy. And as you talked about in the labor market, as well as the spending, we had a huge base effect thing that just made so many rate of change metrics go haywire.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“So the leading conference board leading index is for the broad aggregate economy. We also have leading indicators of specific sectors like employment. So we can have a leading indicator of employment, which would have different components. But in principle, all of the indicators that go into leading buckets aren't supposed to be mythology or indicators that just look good on a chart. They're also supposed to be indicators that logically and both mechanically have to lead in a sequence. So for example, Jack, a building permit has to come before a unit is under construction. A lot of people will say maybe the leading indicators don't work this time. In principle, that's like saying building permits won't come before units under construction. There's somewhat of a mechanical element to why the leading indicators lead. Now, that's not true for every single component, but that's true for a host of the components.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“And so your leading index tells us what's in that and how that works, either for the leading index for the labor market or you can just put up the chart of your conference board leading index for six months in your life. If folks are listening to this as a podcast, we're seeing a lot of red bars on the chart right now. It went from positive growth to negative growth for the leading from April of last year. So for over a year, your leading conference board has been negative and getting more negative. So how would you evaluate the coverage word leading index if it's been negative for, I'm not good at math, but when the economy's not in a recession now and maybe you disagree with this, but Atlanta Fed is forecasting 5.9% GDP, real GDP for Q3.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Move in an opposite direction, sizable changes in the whole basket tend to come together, right? It would be very unlikely that you see the unemployment rate go from three to five and that not be negative NFP numbers, right? So by tracking the entire basket and pulling in hours, aggregate payrolls, unemployment rate, you can get a sense of where the whole basket of labor data is tracking. And that coincident indicator.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“All very valid points. I don't have a precise answer for how much is Slack because I think that's pretty hard to tell. But the way that I cross check all these indicators is when the jobs report comes out, I don't look at the NFP number or the unemployment rate in isolation. I do what I do for all other areas of the economy is I create a composite basket, a coincident indicator of employment. And what that indicator does is it takes a lot of the metrics that you mentioned. The unemployment rate, the non-farm payrolls, the weekly hours worked, the claims data. So it takes all these different sources and it compiles all of them into one composite basket and then all of the differences and idiosyncrasies of we didn't add too many jobs, but the unemployment rate went up and the labor force participation rate went up. All of that kind of gets squared because any given month, all of these things.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Has deteriorated enough where it shows up in the headline figures. And as you point out, I think that the unemployment rate ticking up in the recent report, which was a sizable increase, I think I saw you mention the 0.3% increase is somewhat anomalous relative to history. I think that does speak to the fact that this process is underway. And it's also supported by leading indicators of employment of which I track also hit a new cyclical low in August data, which would imply that the cycle that we're seeing play out, even though it's playing out slowly, will continue in the overall direction.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“As of the latest report, about a 30,000 decline pace. That pace is picking up. Six months ago, it was negative 5,000. Now it's negative 30. So we're seeing the cyclical part of the employment market start to deteriorate. That is your sign that the rest of the labor market will likely follow suit. And if I take broad averages, and I know we've all been in trouble this cycle for using averages, but it implies that based on the way this is tracking, we should see negative payroll numbers in the headline occur something in the area code of around the turn of the year. Keep in mind that reports are a month delay. So the December report will be reported in January. So we're talking about when we receive the reports, it looks like something like January is a possibility for when this stuff would track to the point where it”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Yep. So good question. So basically, what happened was there was just an offset in job gains in some of the other sectors for the job losses in the cyclical part. Very much to be expected in the earlier parts of the cycle. So you were getting job losses in the cyclical economy in late 2006 and early 2007, but the rest of the economy was adding jobs and stabilizing the broad numbers. But as I was mentioning in the example of how the recessionary process goes, those job losses do end up affecting the broader economy as those people become credit stresses later down the road in their other spending. So we've seen net job losses in the cyclical part of the economy. But to your point, the job losses so far have been quite mild. The basket of cyclical job losses that I track is about twenty million total payrolls. And to give you an example of the numbers, we're seeing”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“That point, we've had net job losses in trucking, temporary help services, residential building, and manufacturing is basically flat. So we've had basically nine months of net job losses in this cyclical part of the economy. That is what you would expect to happen first.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“So as I'm following this sequence through, the reason that I'm sticking to the position that I have is because the sequence is continuing to unfold very much in the order in which it always plays out. And when I talk about this order, I am going back all the way to the 1960s. Every recession, inflationary, or the more modern ones does follow the same sequence of events where more leading and monetary and credit indicators start to contract, that leads through to more soft and future commitments about new orders and construction activity. And where we are now in the cycle is we're right about there where we're starting to see consistent job losses pile up in the cyclical economy. So if you take when the yield curve inverted, which was at the end of October of 2022,”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Rising home prices cure a lot of consumer issues. If you're experiencing consumer stress, but like you said, the home price is rising, you could usually refi and get yourself out of some trouble, where it tends to be more problematic is if your negative equity and then you have consumer stress and you can't really hit that escape valve, then it becomes more problematic. But we haven't seen a large declines in home prices. We've seen pretty much just a net basically flat since June of 22.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“The fact that we haven't yet seen a material break in the labor market, we're starting to see the early signs of it, and therefore you're starting to see the early signs of consumer stress in auto, in credit card, in things like that. But when it gets to residential and mortgage, that typically comes late with the 08 cycle, maybe a little bit earlier than normal. So we have a little bit of recency there thinking that.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Would agree with that and how I would fit that into my process. So every data point that we talk about to me always gets sorted into is this a leading element, a cyclical element? Is this a coincident indicator or is it a lagging element? And when we talk about consumer stress or consumer credit, typically you need to see a shakeup in the labor market, which causes the consumer stress. And since we know that labor is in that coincident indicator bucket, generally you start to see broad consumer stress, usually in the middle or towards the end of the recession. And things like that. That was a little bit anomalous in terms of how early some of those credit stresses moved. So I would say it's not super surprising to me that we don't have tremendous levels of credit stress.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“You're not able to get the decline in durables and manufacturing and that sort of downward spiral that propels the rest of the economy into recession. We're seeing the very early signs of job losses accumulate in those sectors, but so far they've been mild enough that they haven't affected the broader economy.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Multifamily units that are under construction. So we're still building tremendous amount of multi family apartments, and that is a very high multiplier sector, just as the single family is, and it feeds through to those other cyclical areas. If you're building a lot of apartments, that means you need a lot of washing machines, a lot of dryers, a lot of refrigerators to go into all of those units. All of those things need to be manufactured. They need to be put on trucks and brought to the buildings. So there's a huge interconnectedness between that resi construction, manufacturing, and durable goods consumption sector. And in my view, what's going on is that despite the fact that interest rates have gone up really sharply, we've yet to see a durable contraction in multifamily construction. We've actually continued to see an increase. And the fact that sector in aggregate multiplus single hasn't contracted.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Building permits and housing starts of these single families. So that is probably going to translate to a small increase in the number of single family units that are under construction. Maybe we go from negative 18% back to negative 15 or negative 12 as we start building some units. But there's a secondary piece to this, which is the multifamily or apartment units that are under construction. And while we've seen single-family construction fall 18% from peak, in that same period, the multi-family under construction has continued to soar. So despite the fact that interest rates have gone from zero to five, despite the fact that multifamily permit activity peaked over a year ago, we have yet to see any contraction at all, even month on month sequentially, in the number of multiple”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“And starts that are more on the leading side. We have the number of units that are under construction, which is a coincidence what's happening now. That's what really feeds through to the labor element. How many people is the industry employing? That's how many units are they building? So what we saw was over a year ago, the level of permit activity for single family collapsed. Then the level of housing units under construction for single family fell sharply. So as it stands today, the level of single family construction is about 18% from peak. So we're building currently 18% fewer single family homes than we were at the peak. That made sense leading indicators said it would contract and then it started to contract. What you're referring to is we're starting to see an upturn again in the”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Accumulate in residential construction, trucking, manufacturing, temporary help. And once you have a sufficient level of job losses in those cyclical areas, those people then become credit stresses. They stop paying on their bills. They stop paying on their mortgage. And only then is that what drags down the non-cyclical or services oriented parts of consumption. So if you're not having a sufficient contraction in the cyclical economy and you're not having the heavy job losses in those areas, you're really not, it's almost impossible to get the non-cyclical part of the economy to slow down enough to propel the economy into recession, which is why we're focused so much on that area. One of the points that I would make about what you're saying is we have to break out all the housing data that we're talking about. We have building permits.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Yep, that's certainly an element of what's going on. I think that there's a secondary factor that I personally believe is more forceful at the moment, but maybe I'll just first explain how I believe in my process, how recessionary conditions unfold, which is why I'm very focused on the hangup that's going on in this cyclical sector. So generally the availability of money and credit tightens from changes in monetary policy and that affects various leading indicators that we all track those leading indicators predominantly foreshadow what's going to happen to the level of activity in this cyclical sector, the residential construction, the consumption of autos and durables, and the manufacturing sector, the trucking sector, these parts of the economy. Once those sectors move into contraction, then those industries have to shed their labor. And you start to see job loss.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“So housing and auto is frequently the sectors that slow down the fastest from interest rates because you're financed with debt for consumers, for mortgages or auto loans, and both have not slowed down by nearly as much as expected. And housing we're seeing a re-acceleration and the explanation, of course, it's always easy to come up with a reason why something happened, much easier than it is to predict. But the explanation is all the folks who bought homes, they're locked in with the 3%, 4% mortgage, so they're not moving. It's like a jail cell for them. So the amount of existing home turnover on the market is so small, so much of the new houses is coming from the new, if people want to buy house, it's coming from the new home market. So that's built by the home builders. And that employees a lot of people for the homebuilding sector.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Defined broadly as residential construction, manufacturing, and durable goods, the lack of contraction in that area as it is the fiscal support to the non-residential construction sector or the consumption of services or the household really hanging in there, in my view, it's really the part of the economy that everyone would have expected to have a large contraction has really not yet. It's still heading there. It hasn't really shown huge signs of improvement.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, absolutely. And again, it was mostly concentrated in the cyclical areas, which, so that big GD retail sales print also carried through to the personal consumption numbers that come out at the end of the month. And we saw the flow through from the retail sales to the durable goods consumption. Mostly it's this motor vehicle area that's continuing to be quite strong motor vehicle parts and consumption of those types of goods. It supports the fact that the cyclical area of the economy, the one that's supposed to slow down first because of interest rate increases in monetary tightening, that's the part of the economy that's actually been more resilient than some of the, I would say, more predominant reasons we hear about why the economy may be avoiding recession. So in my view, it's much more related to the lack of contraction in the cyclical economy.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Than would have been projected so far by the pace of monetary tightening and from the leading indicators. Those indicators haven't hooked up. So I would still be in the camp that type of cyclical spending is on the cusp of turning down. We do see some evidence of that, but as of right now, the lack of contraction in that cyclical area, in my view, has what's provided more stability than the services-oriented spending that I think most people are referring to.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“In terms of how much the durable goods consumption was stimulated, and there was a large expectation that both because of the pent-up demand hangover of COVID and because of the increase in interest rates, we would have had a larger decline in durable goods consumption than we've had so far. We've seen a decline from peak, but granted that peak was way above trend. So we've seen durable goods consumption flatline from over a year ago, but we haven't seen durable goods contract in the way that they normally do leading into recession. So we're seeing something in the order of 1 or 2% contractions in durable goods consumption in real terms. Normally, durable goods contracts four, five, six, seven percent in the lead up to recessionary periods. So I would say that the durable cyclical elements of consumer spending have held up better.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“So, I would say, as all economists, right? Yes, but right. I would say that we have to break out spending into two categories, right? There is the durable goods cyclical type of spending. That is the type of spending that contracts and pulls the economy into recession. If you look at consumption excluding durable goods, which pretty much renders the consumption of healthcare, housing, utilities, food, groceries, that type of spending never really contracts, not even in recessionary periods. That type of consumption was positive for the most part of 2008 and even in mild recessions, that service oriented, healthcare oriented spending doesn't really contract. So what's been durable, no pun intended, is the durable goods cyclical areas of consumption. They were pushed 20 or 30 percent above.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“So, when you look at economic growth, you're talking about income, industrial production, the labor markets, the non-farm payrolls, employment level, retail sales, and consumption. So let's start with the things that have been the most robust. That labor market, we'll get into that in a bit, but just consumer spending. Is it fair to say that Americans have been spending money? And yes, the growth rate of spending has slowed down, but people are still spending a lot of money and it is nowhere close to recessionary. Yes or no?”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“But I still believe the economy is in one of these pre recessionary phases with it actually still being, in my view, not data driven to definitively say that we may not be in the recession now. There's still a lot of indicators that are continuing to point in that direction in the last jobs report we saw a pretty significant increase in both the U1 and U3 unemployment rate. So there are a lot of conditions that are continuing to support that the economy is moving on that recessionary process. These things take time. This one has taken longer than normal for sure, definitely longer than I would have expected given the magnitude of the tightening. But the constellation of indicators that I follow are not giving it all clear sign that we can say that the economy has safely avoided recession and will continue on a new upscycle. In 2024.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“That we're contracting a yield curve that was inverted. And historically, the economy has never skirted a recession with those conditions. And then the recessionary fears were amplified because in March we had somewhat of a recessionary hiccup that went on with the regional banks, which put in place a credit contraction, which all signs then pointed to the fact that this downward snowball was going to continue to accelerate. But as you correctly point out, we've had somewhat of a remarkable stabilization in broad coincident indicators of economic activity, the indicators that define the business cycle, which, as I mentioned, are your broad baskets of income, consumption, employment, and industrial production. So as far as I see it, I know it becomes difficult when the length of time has stretched quite long here.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's right, Jack. No, I'd love to take you through how I define where we are and what's been happening. I just want to say at the outset that I'm a super big fan of your show and you've made like some unbelievable strides over the last couple of years. So it's great to be on and I'm an avid listener. So keep doing the great work there. You're exactly right that in Q4 of last year, everybody was in the recession camp and for good reason. Most of the recessionary indicators that people generally track, such as the inversion of the yield curve, contracting leading indicators, all signs were pointing towards the economy was descending into a recession. And the economy did get close to moving into recession in Q4 of last year because coincident indicators, things like employment, consumption, income, industrial production did move down into a 1% range with leading indicators.”
2023-09-12 · Forward Guidance · Eric Basmajian: Why The U.S. Economy Hasn’t Entered Recession Yet (And Why He Is Confident It Will Soon) · IDENTIFIED FROM THE TRANSCRIPT