The Bible does not specify how blessed Adam and Eve were. But it does name their three sons. The first you know — Cain and Abel. They were followed by Seth. From there, it gets murky though we are told Adam eluded death until the ripe old age of 930. Eve likely aged right there with him. But did she do so “gracefully”? Let’s just go with a ten-multiple vis-à-vis today’s long-life expectancy given they were stars in their day. Applying the same physiological math, today’s female period of fertility — 30 to 35 years – would have given her 350 child-bearing years. At a rate of one child every seven years, we’re ballparking progeny of 50 children. Intriguingly, an ancient work by Flavius Josephus, a Roman-Jewish historian and military leader, cites QI’s guesstimate. Footnoted in The Works of Josephus is: “The number of Adam’s children, as says the old tradition, was 33 sons and 23 daughters.” Why not change diapers for centuries? They were the original sinners. Perhaps their reproductive overachievement was simply to get back in God’s good graces by abiding by His first commission to “be fruitful and multiply” [Genesis 1:28].
While we can only imagine what Adam had to set aside for 23 dowries, we’re told that “It’s Different This Time!” as it pertains to the 23 straight months through January that the Conference Board’s Leading Economic Index (LEI) has been in the red. This officially made the current run the second longest since the series’ 1959 inception, one month longer than the recessionary stretch from June 1973 to March 1975). Just one more month and the streak will tie the record 24 months posted before and during the Great Recession. Given it’s different this time, we should not be plussed that the unemployment rate is just rising…otherwise, we’d be worried we’d hit 33 months, as in the number of Adam and Eve’s sons.
To be sure, it’s only three of LEI’s 10 components that have driven the negativity in recent months: ISM New Orders, Consumer Expectations, and the Yield Curve. In six of twelve months in 2023, this trio accounted for more than the entire drop in the LEI from one month to the next. Consistently key offsets are the S&P 500 and the Conference Board’s Leading Credit Index, a financial conditions metric. While record highs in the stock market and easing credit conditions combined to limit the drag from other key leading indicators, we caution that high yield spreads being lower than the Prime Rate is anything but normal outside recession.
Then there’s the manufacturing workweek. For most of last year, relative stability was the order of the day – or should we say ‘month’. However, that’s changed since November. January’s 40.0-hour factory-worker workweek not only rivaled the Great Recession, but also took out the lows of the 1990-91 and 2001 recessions. Moreover, the three-month drop of -0.7 hours scaled to a -2 z-score. Such left-tail outcomes for weekly hours should raise a collective eyebrow. “Hours before bodies” is a QI mantra. What if the LEI is flagging the next phase of recession, one with longtime cycle trackers are intimately familiar – a cyclical slowdown? Yes, the LEI on a six-month annualized basis has been screaming recession, but what if that was only the fiscal hangover?
A separate prism into where we are cyclically is the Fed’s Industrial Production report. More specifically, the measures for the “gross value of products” translate industrial output into usable guides for specific capital expenditures. One thing that jumped off the page was the weakness in the six months ended January for autos and business equipment – they’ve fallen at annualized rates of -4.6% and -4.2%, respectively. Note the contrast with defense products, which are, all things geopolitically concerned, up 11.9% annualized. We’d be remiss to exclude the stumble to a 2.6% pace for construction supplies reflecting upstream challenges for downstream activities in housing and commercial construction activities.
Sticking with the motor vehicle complex, at -6.7 in January, S&P Global’s global auto sector purchasing managers’ index flashed excess supply in its New Orders-Finished Goods Inventories spread. The pandemic lows are the sole comparable given the limited history of the data. We’ve high conviction that today’s imbalance was equally problematic during the Great Recession. One would expect an echo in key auto producers of the U.S. and Canada, where activity peaked last July. We expect validation once data are reported for the remainder of 2024’s first quarter. The lagged downturn in U.S. autos has been a hallmark of the post-pandemic era as vehicles awaited semiconductors even as the rest of the manufacturing complex fell into recession. Given how tightly lenders are clamping down as layoffs rise, the risk is a sales shock that incorporates the dreaded element of payback.
Looping in Canada’s consumer price index (CPI) seems like a non-sequitur until you consider layoffs specific to the auto sector in both countries. Through January, the CPIs for air transportation, car rental and traveler accommodation all declined by more than -20% on a six-month annualized basis. The closest precedent is 2020; back then it was a manmade shutdown. While Street bonus season has bought a reprieve in U.S. travel, Canada’s deflationary impulses should raise other travel and tourism indicators higher on the watch list south of its border. Yes, the indicators are amassing refuting the staying power of last week’s inflation reports.