Recession Warning Signs
Is a long-fated recession nearly upon us? Today, we’ll check out some of the tell-tale signs from history. After that, we’ll delve into the top fundamental events to watch out for this week.
What’s a recession?
A recession is a serious and sustained decline in global economic activity.
Recessions are not fun. People can lose their jobs, their homes, and their investments. Others struggle to pay for food and medical supplies. More fortunate people may get by, but have to forego luxuries like holidays, dining out and other entertainment. All of which have a huge effect on national and global economies.
There have been four global recessions since 1950–1975, 1982, 1991, and 2009. And, unfortunately, the fifth might not be too far away.
Key signals to look out for
If a recession is coming, this is how we’ll know.
1. Rapidly rising consumer prices
The increased cost of the food on our shelves hits everyone hard and is a great way to gauge the health of an economy.
In the US, the cost of groceries has increased 10.8% since April 2021, which is the largest annual increase in 42 years. This is largely being driven by the increased cost of meat, poultry and fish, which are up 14.3% in the past year — the largest 12-month increase since 1979.
In the UK, grocery trade body IGD last week warned that food price rises in the UK could hit 15% this summer, the highest level in more than 20 years
💡Top tip: Keep an eye on the Consumer Price Index (CPI) releases in key economies.
2. Rising unemployment
When jobs start to dwindle, it impacts national economies in a multitude of ways.
● A decreased workforce leads to lower output of products being created and sold, impacting both company profits and national exports and duties.
● Without a job, consumers have less money to spend on luxuries and even basic supplies become difficult to obtain.
● There’s an increase in social benefit claims and the need for governments to provide a safety net to avoid people sliding into poverty.
All of these things cost people, companies and governments big time and that isn’t good news. If it starts to happen on a global level — “hello recession”!
💡Top tip: Look out for any big swings employment figures in key economies.
3. The stock market strolls into bear territory
If the stock market develops into a bear market, it may be a sign that a recession is around the corner. We officially enter bear territory when the market declines by 20% or more over a period of at least two months.
S&P 500
Source: Google
As you can see, the S&P 500 has dropped 17.59% over the last two months. So we’re getting pretty close.
Large declines in the stock market are important as they not only show the potential health of companies, they can contribute to a recession because investors lose confidence in the economy.
💡Top tip: Watch out for prolonged declines in key indexes, e.g. the S&P 500.
4. Drops in monthly GDP estimates
GDP, or gross domestic product, is the monetary measure of the market value of all goods and services produced by a country within a specific period of time.
GDP is usually calculated annually, but it can be calculated quarterly as well. During some quarters, GDP is negative while, in other quarters, it is positive.
Estimates are made on a monthly basis and can have a big impact on confidence in national economies. Big drops in GDP in key economies over a sustained period are a major warning sign that a recession is approaching.
💡Top tip: Well, this is kinda obvious, but you should look out for drops in GDP releases!
What do you think?
Is a recession approaching? How have you adjusted your trading strategy to cope with it? We’d love for you to let us know by tweeting us at @_Contentworks.
Top trading events week commencing 20.06.22
We should see quite a quiet week in the markets, here are the hottest events for your trading calendar.
Monday
No major events are planned.
Tuesday
No major events are planned.
Wednesday
● GBP — Core Inflation Rate YoY (MAY); Inflation Rate YoY (MAY)
● CAD — Core Inflation Rate MoM (MAY); Core Inflation Rate YoY (MAY); Inflation Rate YoY (MAY)
Thursday
● GBP — S&P Global/CIPS Manufacturing PMI Flash (JUN)
● USD — Fed Chair Powell Testimony
Friday
● JPY — Inflation Rate YoY (MAY)
● USD — Michigan Consumer Sentiment Final (JUN)
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The Contentworks team
