A recession is now pretty much a base case, the only question is when, not if. The majority expect it to come in 2023 but there are indications suggesting that the US may be already in a recession…

The consumer sentiment is at the lowest it has ever been as shown by the University of Michigan Survey. The biggest cause is of course inflation which hasn’t shown clear signs of abating yet. The real wages have been negative for months and this translated in consumers seeing their purchasing powers being eroded and led to weak spending.

The Atlanta Fed GDPNow model estimates that the US economy is likely to register another consecutive negative print for the second quarter triggering a technical recession after the previous quarter came in negative as well. Tightening monetary conditions are another big headwind.

The ISM Manufacturing PMI, which is more sensitive to the business cycle, showed the leading component “New Orders” in contractionary territory which spells trouble ahead. The yield curve, the spread between the 2-year and the 10-year Treasury Note yields, inverted more than once this year and it’s a leading indicator of recessions predicting 7 out of 8 previous recessions. The stock market is in a bear market, and this also can weigh on general sentiment about the economy.

Some commodities sensitive to global growth like copper are experiencing heavy losses. The worse part in all of this is that energy prices, even if they fell a little, remain quite elevated causing more pain to an already weak economy. So, if we look at all of these indications, then we can guess that a recession may be already here and unfortunately there’s nothing that can be done about it because the Fed is solely focused on bringing down inflation.

This article was written by Giuseppe Dellamotta.