QI TAKEAWAY — Recession is manifest in the latest Dallas Fed manufacturing survey and special questions posed by the Eleventh District bank executives. This evidence supports a pivot to long duration.
- At 50.6% and 40.8%, executives cited supply chain disruptions and staffing shortages as the factors most constraining revenues in a June Dallas Fed survey; weak demand ranked third at 26.4%, up 11.3 points since March as Dallas Fed New Orders fell into contraction in June
- The Dallas Fed’s Mfg. Future New Orders growth rate was negative in June for the eighth time in data back to 2005; all other negative reads were during the GFC and the initial Covid lockdown, and rising jobless claims in Texas should soon confirm the recession narrative
- At 2.5 in June, Dallas Fed Mfg. Future Shipments sits more than 34 points below its long-run average, which equates to a -2.5 z-score; while the metric has a 0.6 correlation with the 30-yr yield, the Long Bond is currently diverging from the recessionary signal of Future Shipments