The study of the significance of numbers’ potential influence on our lives, is based on the idea that each number has unique energy and resonance defines numerology. Angel numbers, in sets of three, are said to convey transcendence and act as a divine pilot. Randomly choosing 357 rocks – it’s a sign of guidance, progress and positive changes in your life. Decomposing this perfect (random) sequence allows for a more complete understanding. The number ‘3’ represents optimism, growth, and spiritual direction, urging you to embrace new opportunities and trust your intuition. The number ‘5’ signifies change, adaptability, and a new beginning, emboldening you to slap down your insecurities, seize transitions and take risks. The number ‘7’ symbolizes awakening, intuition, and heavenly connection, validating the idea that you’re on the ideal ethereal path.

In surreal 3-5-7 fashion, yesterday’s U.S. economic calendar delivered messages from the Third, Fifth and Seventh Federal Reserve Districts of Philadelphia, Richmond and Chicago. The results, however, pointed to anything but a celestial tract. Starting in the City of Brotherly Love, the Philly Fed non-manufacturing regional activity index fell 10 points to -42.7, the lowest since May 2020. This kind of definitive pessimism was echoed in the 6-month outlook for General Business Conditions – it fell to -23.0 in April, 4.1 points shy of April 2020’s record low. Current Prices Paid rose to a 2-year high of 46.5 reinforcing the facile stagflation narrative.

Back on Planet Earth, a ‘margin squeeze’ emerged when Current Prices Received was added to the mix — it fell to -0.1 in April, setting up the first negative quarter for pricing power in the broader regional economy (orange line). We see no evidence of tariff pass-through to say nothing of the capacity to bolster profits via higher selling prices. Instead, local service firms are reducing headcount. The average of Current Full-Time and Part-Time Employment plumbed to -7.6 thus far in 2025’s second quarter (purple line). Note this is the survey’s fourth quarter instance since its 2011 inception that a negative sign is on display. Assign this driver to the crash in Philly’s firm-level outlook. At -23.0 in April, the second quarter should print in the red for the first time ever (light blue bars).

A short jog down I-95 to the River City suggested that upstream industrial pricing was running counter to the Third Quarter’s signals. The Richmond Fed manufacturing Current Prices Received rose to 2.7% in April from more subdued readings of 1.6% to 1.8% in 2024’s third quarter and 2025’s first quarter (red line). Moreover, factory executives are confident enough to project Future Selling Prices at a rate of 5.6%.

The catch is the forward outlook for demand is an abysmal -26.0 (yellow bars). This is a sea change for a series with a long-run average of 29.5 – and one that didn’t fall into contraction at any time during the Great Recession. In turn, Current Employment prospects fell back below breakeven, to -5.0 in April after a fleetingly hopeful +3.7 in the first quarter after four negative readings throughout 2024 (blue line). Adding insult to injury, with both future inventories measures – Finished Goods (+10) and Raw Materials (+11) – higher than desired, the future supply-demand imbalance will conflict with any tariffs that move through the supply chain.

The service side of the equation from the Richmond District had a similar but different feel relative to the Philly District. In rare form, Future Demand dipped below the zero mark to -2.0 (light green bars). We can count on one hand how many quarters did the same in today’s third chart of the quad. Where Richmond differs from Philly was the lack of capitulation for Current Employment (+8.0 in April, aqua line) in the face of a deteriorating outlook. The disinflationary Current Prices Received expanded at a 3.0% annualized pace, also differing greatly from the direction drawn from the Philadelphia District.

Richmond Fed President Tom Barkin weighed in on the macro situation from the Big Dipper Innovation Summit. He stated that companies “are not – for the most part – firing people, but they are defensive, and that includes things like hiring freezes or postponing investments or delaying, deferring.” The spirit of his comment was captured in the Richmond Fed services Future Employment index. In December, this gauge was at a two-year high of +30. In April, at +1.0, four whole months later, it hit a wall. Both Richmond Future Capex indices for manufacturing (-15) and services (-6) are in full deterioration mode, quantifying Barkin’s observations.

Growth outlooks from the Third and Fifth Districts were reinforced in the Seventh. At -21.4, the Chicago Fed Survey of Economic Conditions (CFSEC) showed current activity across both manufacturing and non-manufacturing moving further below trend thus far in the second quarter (green line). The CFSEC 12-month outlook for the broad U.S. economy was even worse, plunging to -50.0 (lilac bars). The move below trend increases the odds U.S. growth weakened as winter turned to spring. Since Bloomberg’s consensus estimate for first-quarter GDP presently stands at 0.2%, the direction to the risk for the second quarter is obvious.

The number 7 symbolizes the right and righteous path. For some businesses, Chapter 7 is a much less ideal ultimatum. Last week, Deets Mechanical, a Pennsylvania-based HVAC contractor, went down that road. The filing marked a sharp reversal for the company that publicly announced in January expansion and job growth in Western Pennsylvania. Instead, the business is now shuttered and will liquidate its remaining assets endeavoring to repay creditors. This on-the-ground example channels the business survey data illustrations from the 3^rd, 5^th and 7^th Fed Districts that have real businesses and real people behind them.

“Famous Puppeteers for $1,000.” Your Jeopardy answer: “Who is Jim Henson.” Pat Brymer, not so much. Born March 1950 in Highland Park, Illinois, James Patrick Brymer studied theater at Illinois State University for four years before moving to St. Louis to work for Sid and Marty Krofft’s puppet theater at Six Flags Over Mid-America. He collaborated with the brothers on many other projects, including the kids TV series “The Banana Splits” and the “Hanna-Barbera Happy Hour.” Brymer went on to rack up Hollywood credits including “Short Circuit” (1986), “My Stepmother Is an Alien” (1988), “So I Married an Axe Murderer” (1993) and “Team America: World Police” (2004). Before all these successes arrived, Brymer landed what is arguably his biggest claim to fame. Star Wars veteran John Dykstra led the team that built the animatronic Bushwood Country Club gopher that bedeviled perfectly cast Carl Spackler, played by Bill Murray. But it was Brymer as principal puppeteer, who brought him to life as the irrepressible nemesis in the 1980 comedy classic “Caddyshack.”

Murray had it out for the four-legged dancing machine, and there’s no doubt that he wanted to send him to gopher heaven. If he had been playing “Whack-a-Mole,” sadly, his score would have been zero. In the context of yesterday’s S&P Global’s flash purchasing managers’ indices (PMI), Danielle posed to QI’s Dr. Gates, “Do we begin to play Whack-a-Mole country-by-country dictated by the next ‘Truth’ Social post?” It’s a given that PMIs guide cyclical turning points. In that spirit, today’s quad takes a tour around the globe to gauge recession risk in the Euro Area, U.K., Japan and the U.S. In each case, the playing field was leveled using z-scores of Composite (manufacturing and services) Output measured on a current and future basis.

In the Euro Area, Current Output has been running below trend since June 2024 (-0.3 in April, purple line). From a growth standpoint, this stagnation has created a persistent disinflationary backdrop, one where the European Central Bank (ECB) has undertaken 175 basis points (bps) of easing since last June. Over the same timeframe, expectations of Future Output ran close to that of its current counterpart. That changed dramatically in April. Future Output slid below the -1 z-score line, to -1.1, for just the 14^th time since the series 2012 inception (orange line). Past deviations of this magnitude have produced an average Euro Area consensus recession probability of 67%. You’d agree it’s curious that the forecasting community is dreaming of only 30% odds in the next year (blue bars).

To be sure, this is not because of the 50% and 60% recession risks for Germany and France, respectively. The benign stance is attributable to countries outside the core. Thus, we rejiggered the first chart to arrive at the Euro Area excluding Germany and France and found even starker contrast between Current (+0.2) and Future output (-1.0). Complacency is rife in recession probabilities for Italy of 35%, and that of Spain, at a scant 10%. Downside surprises in smaller countries outside the Big Four also cannot be ruled out, which begs the question: “Will the two-to-three quarter-point ECB cuts suffice between now and year end – despite the guidance for expanding defense budgets?”

In the U.K., the z-scores for Current (-1.0, blue line) and Future output (-2.2, red line) are in an even more precipitous position. The outturn for Current coincided with recessionary 2023. The pandemic notwithstanding, the Future figure below the -2 threshold was reserved for the post-Russian invasion period in 2022 and 2016’s Brexit referendum. These observations correlate with shock value. The four other extreme negative readings corresponded to an average U.K. consensus recession probability of 62%, appreciably north of the sell-side 40% likelihood over the next 12 months (yellow bars). Again, we must ask: Are three-to-four 25-bp BoE reductions priced in the swaps market between now and the end of the year, on top of the 75 bps already undertaken since last year, appropriate given the greater recession risk posed by supply chain agents?

A stop in Asia is warranted. For Japan, Current Output has waffled for some time. To that end, in April, Current clocked in at +0.2 z-score (yellow line). The story is in Future Output — March and April arrested the preceding 49-month stretch of above-trend optimism with respective z-scores of -0.2 and -0.6 (green line). This said, despite the change in tone, these are not outliers. For perspective, average z-scores between 0 and -1 have been associated with average recession probability of 28% for the Land of the Rising Sun. The likelihood rises at -1 or below (52% average) and is close to certainty at -2 or lower (83% average). Conclusion: Japan looks fairly valued at its 30% recession probability (lilac bars). A word of caution for the region emerged last night with news that South Korea had unexpectedly succumbed to negative GDP in the first quarter.

Lest we exclude the United States, its Current (-0.7, light blue line) and Future output (-1.1, fuchsia line) are consistent with periods of below-trend activity. The 2015-16 Industrial recession, the 2018-19 U.S./China trade war and 2022’s stunted growth stand out. Readings at -1 or less have garnered 45% recession risk in the past vis-à-vis current expectations of 30% expectation (green bars). Procurement professionals are whispering downgrades to U.S. economists. At least those mutterings best Carl Spackler’s fighting words to a cuddly tunneling expert. S&P Global’s Ben Herzon has heard them and cut his Q1 GDP tracking estimate to -0.1% through yesterday’s new home sales report. Are revenue downgrades next?

You likely think of New York and Los Angeles when you hear ‘Koreatown.’ Curiously, they don’t top the U.S. list. That distinction goes to Bergen County in Northern New Jersey, a short car ride across the George Washington Bridge from NYC. Four small, neighboring towns top the list in terms of percentage of the municipality’s population densities (in ascending order): Fort Lee (23.5%), Ridgefield (25.7%), Leonia (26.5%) and Palisades Park (53.7%). Korean food junkies should be all too familiar with that last one given New Jersey Monthly dubbed its main thoroughfare, Broad Avenue, a Korean food walk of fame: “Signs in both Korean and English announce bars, bakeries, groceries, take-out shops, noodle houses, and bulgogi restaurants. Strips of raw marinated beef, pork ribs, chicken, or seafood are brought to your table with a variety of well-suited condiments and vegetables, including kimchi, the staple spicy pickled cabbage.” Is your mouth watering at the mouth-watering possibilities?

No surprise, Palisades Park proprietors are just as tariff terrified as any Main Street small business. Their home country relatives are sharing in their anxiety. April’s first-20-day figures for South Korean imports fell 11.8% year-over-year (YoY, lilac line), while the 20-day export numbers were down 5.2% YoY (purple line). The combined performance was the weakest in 14 months. According to the Observatory of Economic Complexity, South Korea ranked as the fifth largest global exporter in 2023. Historically, April’s compression on both sides of South Korea’s trade ledger has accompanied significant economic upheaval (lilac and purple dashed lines):

• 2007-09 Great Recession
• 2011-13 Euro Area recession
• 2015-16 Global Industrial recession
• 2018-19 U.S./China trade war

Economists are underpricing that risk. Recession probabilities via Bloomberg for the U.S., Euro Area, Japan and China were 30%, 30%, 30% and 15%, respectively. Even recession expectations for South Korea, at 25%, favor expansion over contraction.

Asian trade flows aren’t the only scorched tea leaves. The Equipment Leasing & Finance Foundation’s (ELFF) Monthly Confidence Index gauges confidence in the $1.3 trillion equipment finance sector. At 40.8, the U.S. metric has tumbled to the lowest level since October 2023. Moreover, the speed of the decline over one-, two- and three-month timeframes ended April clocked respective records of -16.2, -25.0 and -27.7 points.

ELFF’s soundbite: “Turbulent times…doom and gloom mixed with increased opportunities. Tariffs could lead to higher prices for parts and equipment. They also will result in ‘creative’ financing opportunities to help borrowers protect cash flow and offset higher prices for goods. Once you get past the fear, it’s an exciting time to be in equipment finance.” Will this schizophrenic take carry into May? About half the survey responses were submitted prior to the ‘Liberation Day’ tariff announcement on April 2^nd.

The higher beta ELFF index leads capital expenditures and purchasing manager activity. To that end, the sharp reversal in ELFF (blue line) flags the consensus call for Wednesday’s S&P Global U.S. manufacturing PMI falling to 49.0 in April vs. 50.2 in March which is directionally correct, but shy on magnitude (red line).

The upstream equipment leasing sector also guides nonresidential construction. F.W. Dodge’s construction contracts series, seasonally adjusted by the Conference Board, is in the throes of capitulating. The January/February downward momentum in new projects in commercial and manufacturing buildings slumped to an eight-year low (lime line). If equipment finance confidence is any indication, we’ll see more downside yet in two months’ time.

Validation was on display in the U.S. index of leading indicators (LEI), which pointed to a continued extension of the down cycle in construction contracts. While roundly disregarded for far too long, we must note that the LEI, which hit -0.7% March vs. -0.5% consensus estimate, just posted the biggest month-over-month drop in two years. While the last 20 years have seen turning points in the LEI (fuchsia line) vary vis-à-vis inflections in the F.W. Dodge series, the direction is once again clear – the bottom isn’t in for commercial and manufacturing construction.

At a higher level, financing conditions won’t be coming to the rescue. Per the Dallas Fed’s Banking Conditions Survey, ELFF’s ‘creative’ financing opportunities should be happening on smaller business loan books. Through April, net commercial real estate (CRE) loan demand backslid to a zero reading from the net +10.5 optimism just two months prior (green line). At -6.4, commercial and industrial (C&I) loan demand showed an even larger turnabout in April relative to December’s local high of +12.4 (yellow line). In one Survey special question, lenders in the Eleventh District indicated they expected credit standards and terms to put the squeeze on borrowers over the next three months. For CRE, 23.7% anticipated tightening versus 3.4% who foresaw easing. For C&I, 21.7% looked for tightening compared to just 1.7% calling for easing. Business loan demand suggests that conduits for business investment expansion are narrowing.

From the macro in the Lone Star State to the micro, Fiber Optics 2.0 promises to exert extra pressure on the construction pipeline at very wide margins. On Monday, Wells Fargo Equity Research published: “Data Centers: AWS Goes on Pause.” It would seem that Amazon Web Services is following Microsoft’s lead. As the Wells analysts wrote: “Over the weekend, we heard from several industry sources that AWS has paused a portion of its leasing discussions on the data center colocation side (particularly international ones).” On that note, we hope you haven’t lost your appetite for Korean BBQ.

In July 1994, Alvin Straight left his hometown of Laurens, Iowa, and began the 240-mile journey to Blue River, Wisconsin, to see his brother who had just suffered a stroke. At the time, Alvin was 73 and had no driver’s license, so he took the one mode of transportation he had available: a John Deere riding lawn mower. Towing a jury-rigged trailer filled with food and supplies, Straight kept to highway shoulders, creeping along at less than ten miles per hour. The trip was not without hiccups. At one point, the mower broke down and required repairs, while at another he ran out of money and had to wait for his next Social Security check. But the stubborn Straight was undeterred, eventually making it to his brother’s house after more than a month. The adventure inspired the wonderful 1999 film The Straight Story, starring Hollywood veterans Richard Farnsworth, Sissy Spacek, and Harry Dean Stanton.

The Philadelphia Fed’s April Manufacturing Business Outlook Survey crossed the wires this past Thursday morning, and the story behind the data was as straightforward as it comes: No Bueno. Responses to the survey were collected from April 7-14, in the aftermath of the White House’s initial “Liberation Day” announcement and the manic adjustments to the policy that followed. Philly firms made clear their preference to wait out the current uncertainty. Notably, the diffusion index for current activity collapsed 39 points to -26.4, its worst print in two years and well below the +2.2 consensus. Also on display was a growing supply-demand imbalance, as the New Orders-Inventories spread fell from 14.4 to -33.3, a cycle low with just one (non-pandemic) precedent: May and June 1980 (orange line). The driver of this deep inversion was the complete capitulation in New Orders, which sank 42.9 points to -34.2, their worst (non-pandemic) print since March 2009.

The retreat in demand relative to supply is a bright red flag for factory sector employment. The average of the Philly Fed’s Future Employment and Future Workweek indices has already been in retreat every month this year, sinking from January’s 27.7 to April’s -0.9, the first negative print since January 2023’s -2.6 (purple line). Given the magnitude of the New Orders-Inventories imbalance, more employers are likely to follow Volvo’s lead, which late last week announced plans to lay off 800 workers across three plants in Pennsylvania, Virginia, and Maryland.

Recall that the Philly Fed region is the nation’s chemicals hub, and thus leads the industrial supply chain. Given the weakness on display in the Third District, we would expect to see declining employment needs (expressed through job openings) in the most manufacturing-intensive states relative to the rest of the nation, which the top right chart delineates. At present there isn’t much distinction between the two, as both have been contracting on a year-over-year basis since August 2022. Their respective -13% year-over-year (YoY) and -14.6% YoY prints are now on par with early 2008 levels, which eventually nose-dived that fall post-Lehman. That being said, remember that the JOLTS data are delayed, with February the most recent month available. Expect cracks to form come the release of the March and April numbers, with openings in the more manufacturing-intensive states breaking first (fuchsia line).

Shifting gears to housing, it was a similar, straightforward story of downward momentum in the March housing starts data released by the Census Bureau last Thursday. Things were particularly troublesome for Single-Family Starts, which sank 14.2% month-to-month to a 940,000 seasonally adjusted annualized rate (SAAR), the steepest sequential decline since April 2020 (aqua line). QI friend David Rosenberg had an insightful observation that, “Weather was not an issue… one would have thought we would be seeing a big push of replacement buildings in the aftermath of those horrible early-year SoCal fires, but starts in the West cratered 31% MoM and are down by nearly 9% on a YoY basis.” A look at the bottom-left chart makes clear that both Single-Family Starts and Permits are tracing an M-shape, and are now coming down from a second peak that failed to match the local high from early 2024.

While Single-Family Permits sank to a four-month low, Multifamily Permits actually jumped 9.3% MoM, which should continue to fuel rental inflation relief as more supply comes online. Last week’s update to the Cleveland Fed’s New Tenant Rent Index sent 2025’s first quarter to -2.2% YoY from 1.0% YoY in 2024’s last three months (red line). Notably, the shorter-run, two-quarter annualized rate of change is falling even faster, at a stout -7.9% (yellow line). In data back to 2005, this is a record two-quarter decline, taking out the Great Recession low of -4.9% from 2009’s second quarter.

New home sales figures for March are due this Wednesday, with the consensus penciling in a 680,000 seasonally adjusted annualized rate, roughly in line with last month’s 676,000 print. Color us skeptical given a recent Redfin release. Per their calculations, homes that went under contract in March were on the market for an average of 47 days, the longest for any March since 2019. Meanwhile, just 27% of homes sold over list, the lowest March total since 2020. Even as more supply comes online, particularly in Sunbelt suburbs and exurbs that saw massive in-migration following the pandemic, buyers have not been enticed to move off the sidelines. Mortgage rates aren’t helping, with Freddie Mac reporting an average 30-year of 6.83% in the week ended April 17, up 21 basis points from the week prior. Neither is tariff policy uncertainty, with a recent Redfin survey indicating that 24% of Americans are planning to scrap making a major purchase (auto, home, or otherwise) as a result, with another 32% going into “wait-and-see” mode. Though we should be in the throes of the busy spring season, all signs point to the risk of housing breaks down, just like Alvin Straight’s John Deere rider mower.

“After climatologist Jack Hall is largely ignored by U.N. officials when presenting his environmental concerns, his research proves true when a superstorm develops, setting off catastrophic natural disasters throughout the world. Trying to get to his son, Sam, who is trapped in New York with his friend Laura and others, Jack and his crew must travel by foot from Philadelphia, braving the elements, to get to Sam before it’s too late.”

Rotten Tomatoes summary, The Day After Tomorrow

For 20 years, The Day After Tomorrow held the record of the highest opening weekend for a natural disaster film until 2024, when it was dethroned by Twisters. Audiences spoke with their wallets but were split on their takeaways. A small Rotten Tomatoes sampling sided with The New Yorker Anthony Lane’s panning, “A shambles of dud writing and dramatic inconsequence which left me determined to double my consumption of fossil fuels. Matthew Rozsa of salon.com countered with, “‘The Day After Tomorrow’ deserves to be seen – and, if humanity fails to thwart climate change, preserved like that Gutenberg Bible.”

Hollywood’s 2004 depiction of climate change featured siphoned air from the upper troposphere that flash freezes anything caught in the eyes of massive cyclones with temperatures below -150 degrees Fahrenheit. April 2025’s New York Federal Reserve’s Business Leaders Survey, covering the highest intensity service sector state depicted next level climate change. The current business climate index fell to -60.7 in April, a level reserved for recession. The -50.0 reading for its future climate counterpart emitted an ear-piercing echo. The pandemic notwithstanding, at -38.9, the three-month decline in the former, at -38.9, was only exceeded in September 2007, three months prior to the Great Recession onset. In the case of the latter, the -63.2-point collapse since January has no precedent.

Altered business climate is one thing. Changed business behavior is quite another. Follow through from the tectonic moves is manifest in the heart attack suffered by the capex and employment outlooks. Future Capex plumbed to a recessionary -21.7 in April from March’s -3.9 (orange line). The rare move into negativity for the Future Employment index to -5.4 ups the probability for New York to lead in job losses and higher unemployment (blue line).

Abrupt deterioration in key cyclical markers in the Fed’s Second District was not isolated. The National Association of Home Builders (NAHB) sported a collapse in its Future Sales index. In the last three years, builder expectations have so gyrated, that this last move makes for a quadruple dip. From a technical standpoint, the prior two were “higher lows,” suggesting a healing. The latest plunge, however, broke support as Future Sales dropped from 66 in December to 43 in April (lime line). The bigger news, though, was that the 23-point compression has no equal outside of the involuntary movements accompanying the pandemic’s rush ashore (purple line). So violent was the four-month crash, it dwarfed the 2000s housing bust.

Overshadowing souring homebuilder and service sector were U.S. consumers front-running tariffs. Lofty expectations for March’s Retail Sales report were realized with the 1.4% headline lining right up with the consensus estimate. Details of the report clearly displayed a demand pull-forward. Discretionary Retail Sales, excluding food & beverages, health & personal care, and gasoline, surged by 2.1% month-over-month (MoM), the stoutest in two years and seven times the long-run average of 0.3% MoM. Such a right-tail outcome amidst an environment of rapidly deteriorating consumer expectations and financial market volatility is unsustainable.

Weakening NAHB homebuilder expectations coupled with the sharp pullback in home goods’ buying conditions from the University of Michigan (UMich, red line) tell you the 2.2% MoM gain in home goods sales, including furniture & home furnishings, electronics & appliances, and building materials, are poised to reverse. As a microchannel check, the average stock prices of big-box home improvement retailers, Home Depot and Lowe’s (green line), have tracked buying conditions in recent years. November’s topping and subsequent reflect the risk embedded in consumer forward guidance.

Auto sales were the biggest standout. Were a trend line drawn to 2010 to capture the long-run path for nominal motor vehicle turnover, five of the last six months ended March would come in above trend (not illustrated). The magnitude of pull-ahead flags the good news from this sector likely having run its course, which struck a chord given a local Toyota dealership’s TV ad in Dallas is hawking 0% financing for 72 months. As with home goods, UMich provides forward guidance via its gauge of auto buying conditions (yellow line). Contrasting the upside from unit auto sales (aqua line), the proper read-through is the danger of a cliff effect for auto sales is high. Compounding this threat is tightening lending standards as banks get shellacked with soaring consumer loan delinquencies and charge-offs.

A “Day After Tomorrow” disaster, hailing a new ice age, is not priced in. Fed Chair Powell stressed yesterday that “our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem.” So obtuse was the congenial chair, a PRO incredulously asked, “Is this guy fighting yesterday’s war?!” By the time first quarter GDP hits on April 30^th, in FOMC Blackout ahead of his May 7^th podium call, to say nothing of April payrolls, due out May 2^nd, also in Blackout, Powell’s whiplash will have him in a neck brace.

As proud wordsmiths and students of the business cycle, we’re naturally drawn to “word cycles.” Also known as “rotograms” or “bicycles,” word cycles are simply reversible compound words. The two halves can be placed in either order to create entirely different terms. In 1969, the periodical Word Ways’ David Silverman vaguely introduced the concept in three-word and two-word formations. He caveated that the former are “harder to come by” and the latter are “downright scarce.” A year later in the same publication, Faith Eckler begged to differ with Silverman: “It is unfortunate that Mr. Silverman does not define the criteria for a valid word cycle, for it would then be easier to give examples. Should the resulting two pairs of words both be entered as a single word in Webster’s Unabridged Dictionary, as BOATHOUSE and HOUSEBOAT? If so, bicycles are not hard to find, e.g., SHOTGUN and GUNSHOT, or HUNTSMAN and MANHUNTS.”

Today, it’s all about the OUTLOOK. You get where we’re going! Viewpoints from three distinct audiences – global investors, regional manufacturers, and U.S. consumers – concur on the path forward. The future hit a wall in April, as in flip OUTLOOK, add a space between the words and LOOK OUT!

Warren Buffett is a good place to start. In his annual newsletter, the 94-year-old billionaire investor said he would “never prefer ownership of cash-equivalent assets over the ownership of good businesses.” In February, the Financial Times featured his record cash stache that’s approaching $350 billion (blue bars). Unruffled by still-high valuations, the famed investor continues to trim his equity holdings in favor of the safety of Treasury bills. Time will have to wait for Buffett to once again mine the value that is the hallmark of his legendary and long investing history. For perspective, Buffett is sitting on enough cash to buy 476 companies in the S&P 500. That’s one eye-opening way to quantify the sheer buying power of a man patiently sitting on the sidelines and waiting this one out.

According to Bank of America’s Global Fund Manager Survey (FMS), Buffett might want to keep cooling his heels. The top tail risk, ‘Trade War Triggers Global Recession,’ soared to 80% in April (orange bars), the highest conviction for any top tail risk tallied in the FMS since Michael Hartnett and his team began publishing the monthly report 15 years ago. This critical mass of investors centering their collective anxiety around the same fundamental concern suggests a self-fulfilling narrative. Peering through a different lens, ZEW economic expectations measured from institutional professionals at “banks, insurance companies and financial departments of selected corporations” corroborates. ZEW is one of Germany’s leading economic research institutes, but it also measures sentiment across other parts of the globe.

April’s collapse has been concurrent as the trade war amped up. The U.S. figure for economic expectations plumbed to a record low of -71.5 from -48.7 in March and +1.3 in February, taking out January 2001’s previous low point of -71.2 in the process (green line). No surprise, in the crosshairs as they’ve been, China’s macro outlook also dropped sharply, to -38.1 from March’s +8.0 (orange line). The Euro Area was not to be left out — the forward view for the Continent plumbed to -18.5 from an eight-month high of +39.8 previously (aqua line). Importantly, the -50-point swing for the U.S. in March was closely mimicked for China in April (-46.1-point delta) and dwarfed by the Euro Area (-58.3-point delta). Both suggest there’s ‘catching down’ to do as the U.S. fell another -22.8 points in April.

The first look at forward guidance from the industrial supply chain was similarly downbeat. While the headline Empire manufacturing index came in slightly ahead of the consensus estimate (-8.1 vs. -13.1), it was the future that was perceived as grim. The New York Fed indicated that firms in the Second District saw a worsening in economic conditions in coming months at “a level of pessimism that has only occurred a handful of times in the history of the survey. The index for future general business conditions fell twenty points to -7.4; the index has fallen a cumulative forty-four points over the past three months.”

General business conditions don’t capture their company-specific counterpart. By marrying the five future components of New Orders, Shipments, Employment, Delivery Times and Inventories and assigning them ISM weightings of 20% each, the only rivals to April’s 47.8 occurred during the month of 9/11 (45.7) and at the depths of the Great Recession from January 2009 (45.6), February 2009 (45.9) and March 2009 (46.2). While not sub-50, another standout, as opposed to being outstanding, was March 2023’s 49.9 on the heels of regional banking turmoil.

As for consumers’ outlooks for business conditions, Friday’s University of Michigan (UMich) print stripped away uncertainty and replaced it with unambiguity. Breaking down the UMich component of consumer sentiment revealed a clear swing from optimism to pessimism. Those responding “good” dropped to 14% in both March and April, near past cycle lows (yellow line). After peaking at a record 52% in October, “uncertain” has subsequently fallen every month, crash-landing to 20% this month (red line). “Bad” surged to 66%, a recessionary read (light blue line). While the National Bureau of Economic Research hems and haws, their true task should be seeing through any tariff-induced demand-pull-forward in today’s Retail Sales and Industrial Production lest their own outlooks leave them screaming, “Look Out!”

No surprise, “Hold your horses!” dates to the days of equine transportation. Back then, drivers used reins to control their steeds’ speed. Our personal preference of the term heralds from Homer’s Iliad, when Menelaus tells Antilochus to slow down during a chariot race, saying, “Antilochus – you drive like a maniac! Hold your horses!” If you prefer highbrow, in 1939, Chatelainemagazine featured a line that read “hold your horses, dear.” PhraseFinder.com informs us that the slang version — “hold your hosses” – in 1844. Nearly relegated to passé today, we’ve high conviction that young mothers for generations to come will conjure these three words when junior or junior-ette has stomped on their last nerve. In combination with hands on hips and a steely look in her eye, kiddos on the receiving end are likely being told to do a whole lot more than wait a second. Once mom gets to said offspring, he or she is likely in some serious trouble.

When Danielle had four under four, her house was as volatile as today’s financial markets. As with the worst of the supply chain snarls that vexed the world five years ago, those turbulent times have largely passed. We know this because we have a point of reference – GEP Global Supply Chain Volatility Index (GSCVI), produced in concert with S&P Global. Derived from S&P PMI surveys, it’s derived from around 27,000 companies in more than 40 countries. The headline figure is a weighted sum of six sub-indices gleaned from PMI data, PMI Comments Trackers and PMI Commodity Price & Supply Indicators compiled by S&P Global. A value above 0 indicates that supply chain capacity is being stretched amidst increasing supply chain volatility. A value below 0 indicates that supply chain capacity is being underutilized, reducing supply chain volatility.

A leading indicator that tracks demand conditions, shortages, transportation costs, inventories and backlogs, March’s GSCVI declined for a third straight month to -0.51, a near five-year low, and indicating the largest amount of spare capacity across global supply chains since the height of the COVID-19 pandemic in 2020. Per GEP, the sharp pullback was due to tariff-related uncertainty as manufacturers pulled back purchasing activity and inventories. Companies are aggressively pursuing cost cuts by pushing back on suppliers to absorb tariffs and de-risk their own global supply chains.

March’s key findings can be read as follows in the long chart from today’s quad:

“DEMAND: Our indicator, which tracks global demand for raw materials, components and commodities…remained close to its long-term average, signaling global purchasing activity was near its historical trend. There remain considerable geographical differences, however, with a worsening of factory input demand in North America contrasting with some pick-up in Europe and Asia.

INVENTORIES: Reports of safety stockpiling from manufacturers across the globe decreased in March to their lowest since July 2016 as procurement managers show a strong reluctance to add to their inventories. The data continues to point to the adoption of a “wait-and-see” mentality among buyers as uncertainty regarding worldwide trade conditions remains rife.

MATERIAL SHORTAGES: Our global item shortages indicator, which tracks the availability of critical commodities, common inputs and components, remains below its long-term average, signaling robust global material supply levels. This metric implies that vendors have stock to meet orders from their customers.

LABOR SHORTAGES: Reports of labor shortages remained contained. Companies are not struggling to process workloads due to staff capacity constraints, according to our backlogs tracker.

TRANSPORTATION: Global transportation costs fell to their lowest in the year-to-date. Overall, they were close to their long-term average level in March.”

A cross reference from GSCVI’s inventories translates to the recent path for U.S. business loan volumes. The rollover in the six-month annualized trend in real commercial and industrial (C&I) loans to -2.6% in March (green line) from October’s local high of 1.1% expresses supply chain professionals’ “reluctance to add to their inventories.” Historically, C&I loans fund inventory investment. To wit, the extent of real C&I declines (dashed green line) echoes previous episodes when supply chains sported excess capacity.

Evidence on the ground concurs with the GSCVI via a cooling upstream as chemicals rail carloads topped in December 2024 and have since fallen back (purple line). This contrasts with relative geographic strength in Asia, where suppliers ran their supply chains at full speed last month. Incoming intermodal containers throughput to American rail lines concur, with volumes rising through 2025’s first quarter into April (orange line). That stands to reason as China exports, at 12.4% YoY, were almost three times consensus expectations for 4.6% YoY in April, approaching October’s two-year high of 12.7% YoY.

Contrasting Asia was the retrenchment in North America due to the proximity of tariffs. GEP reported that purchasing activity fell the most in Canada. Consumers in the U.S.’s neighbor to the north agreed with deteriorating sentiment: the Nanos consumer confidence index plumbed to 45.9 in April’s second week, the lowest since February 2023 (yellow line). The gauge captured the “hold your horses” mentality seizing Canadian households given their home country is a heavyweight commodity supplier and perpetually exposed to the global supply chain. Canadian’s incomes are naturally sensitive to movements in commodity prices – “The higher the better, eh!” The thing is. Bloomberg’s Commodity Index is moving in the opposite direction (red line). The precipitous fall off in Canadian consumer confidence suggests there’s more to come.

“Something or other lay in wait for him, amid the twists and turns of the months and the years, like a crouching Beast in the Jungle.”

Henry James

Published in 1903, The Beast in the Jungle is one of British-American author Henry James’s finest works. The novella tells the story of a man named John Marcher who is paralyzed by fear that something catastrophic will one day befall him. His anxiety keeps him from doing anything with his life other than waiting in dreadful anticipation for what fate has in store. He confides in his friend, May Bartram, who agrees to spend her days with him, waiting for this metaphorical “Beast” to attack. Though she is in love with him, he refuses her. Time inevitably passes and the two grow old, but Marcher’s tragedy never arrives. It’s not until his friend dies and he visits her grave that he has a horrid realization: the “Beast” he was waiting for all along was his choice to turn away from love and let fear keep him from living a meaningful life.

The historic volatility on display in markets last week surely has many fearing some unknown beast lurking on the economy’s horizon. Whether it’s recession, liquidity issues, or further escalation with China, investors are on edge in the face of such uncertainty. So too were consumers in the University of Michigan’s preliminary results for April, which posted a fourth straight monthly decline in headline sentiment. Notably, Americans of all political persuasions, including Republicans, saw their expectations fall, continuing a trend seen over the last several months (red, purple, and blue lines).

Unfortunately, partisanship clouds outlooks in the UMich data (see the dramatic flip-flop in expectations between Republicans and Democrats last November). Focusing instead on more even-keeled Independents, their expectations nonetheless sank 7 points to 43.6 in April, a 37% meltdown from December’s 69.5. Similarly, this cohort saw a fourth sequential increase in their year-ahead inflation expectations. While not as high as Democrats’ 7.9% nor as low as Republicans’ 0.9%, Independents’ 6.2% print nonetheless marked a doubling from their 3.1% outlook in January (purple bars).

The media continues to play its part in stoking inflation fears among a populace still not healed from the post-pandemic episode. More sensationalist headlines poured fuel on the fire in the aftermath of the White House’s trade policy changes last week (Exhibit A from Reuters: “A $2,300 Apple iPhone? Trump tariffs could make that happen”). When coupling fears of higher prices with record-high joblessness concerns, the proverbial beast in the jungle for many appears to be stagflation. A look at the average of two gauges in the UMich data, Higher Unemployment Expectations (the “stag-”) and Prices Up More Than Income (the “-flation”) makes clear that we’re in uncharted territory. April’s flash print came in at a record high 67.5, up from Q1’s 58.8 average, which was itself already a record (light blue line) and nearly double the long-run average of 36.5. By comparison, the two prior peaks occurred during the early 1980s recession (Q2 1980, 56.3) and at the height of the Great Financial Crisis (Q3 2008, 56.5).

What comes next, then, for households so primed for a lack of growth and stubbornly high prices? For one thing, we can expect them to take a more defensive posture. To quote QI’s Dr. Gates, “How else are they going to pay for this except to raise cash in whatever way, shape or form (selling assets, spending less than what they make, etc.)? The current situation has no comparison as 67% of consumers have higher unemployment expectations and 68% have expectations that prices will exceed their incomes over the next year.” Take a gander at the bottom left chart, which shows the growth rate in demand deposits and retail money market funds. Circled in red are the two historical instances with the fastest acceleration in liquid money growth (excluding the stimulus-driven spike during the pandemic). Notice that they align with the two prior historical peaks in stagflation expectations. While the current 12.6% YoY pace in this liquid money proxy has yet to reach these historical highs north of 20%, it has been on an upward trajectory since bottoming at 3.3% YoY in August 2023 (green line). Until we see a reversal in stagflation expectations, liquid money demand is poised to grow as households prepare for a coming storm.

Now, whether this stagflationary storm arrives is an entirely different question. Whatever the final tariff regime looks like (pending any new carveouts or exemptions that inevitably benefit the largest companies with the best lobbyists), we remain skeptical of how much pricing power firms will have to pass costs on to consumers. The PPI for Trade Services measures the difference between what wholesalers and retailers pay to acquire goods and what they’re able to charge customers, and the latest data is flagging a margin squeeze. The -0.9% print for March on a six-month annualized (6MA) basis is the first negative print in a year and a steep drop from the 7.8% clocked just two months prior (yellow line). At the same time, wholesale and retail nonfarm payrolls are continuing to grow at 0.9% on the same basis (pink line). If higher prices can’t be passed on, continued cost-cutting via headcount reductions and reduced investment will be essential to survival.

In Friday’s Feather, we discussed the ongoing pullback in discretionary spending evidenced by airlines cutting their forecasts and promoting fare discounts for the summer high season. Budget carrier Frontier joined the club on Friday by lowering its first-quarter guidance and, like its luxe counterpart Delta, pulling its full-year outlook. Regardless of what comes next as more trade policy details jolt headline watchers, the damage to near-term consumption has already been done. Households are making clear they’ve seen a beast in the jungle and are positively spooked.

The Industrial Revolution heralded all manner of innovation. To gird them ahead of gruelingly long shifts, workers had to pound a quick and hearty breakfast. Circa 1800s British street vendors sold these hungry ranks “bap” sandwiches — egg, meat, and other savory ingredients on a soft, floury white bread roll. As factories popped up across the pond, copycats flourished. Stateside, however, proved to be a turning point that spawned an entire industry. In the 1950s, trendy Americans spurred a rush to all things convenient. They called it “fast food.” AM adaptions included the

Denver sandwich, the southern biscuit-based version, and the deli-ified bagel variety. The bacon, egg, and cheese breakfast ‘Sammy’ is a cherished institution in corner stores and bodegas nationwide, waking America with a smartly paired cup of Joe. Whoever merits credit, which is unknown, our hats off to you – if not an energy boost, it’s one heck of a hangover cure!

A piping hot bacon, egg & cheese sandwich could be just the fix for investors’ Irish flues after last week’s turbulence. Speaking of feeling like a scrambled egg, weren’t we just obsessed with all things eggs a hot minute ago? Armchair avian flu experts had sprouted in winter as this breakfast staple advanced at double-digit MoM rates in January and February. March’s 5.9% MoM hardly registered on the Richter scale! But that doesn’t mean relief is on offer. Stack the price movements of bacon, egg and cheese and you find the combined monthly changes summed to 10.2%, the tenth time these three have clocked double digits since 1998 (green line). Breakfast shock, indeed.

Of course, breakfast is the most important meal of the day. The flip side of such essentiality was revealed in parallel downdrafts in travel pricing. Sequential changes in airfares (-5.3% MoM), car rental (-2.7% MoM) and hotel rates (-4.3% MoM) comprised three of the four largest component declines from February to March. In overlapping history since 1998, coincident drops in these three travel-relative categories have occurred just 34 times in 326 months – a similar 10^th percentile to bacon, egg and cheese, but to the downside. The pandemic aside as the economy was forcibly shuttered then, March’s synchronous blow to airfare, car rental and hotel prices constituted a travel shock. The combined -12.3% (purple line) was the steepest deflation on record.

Taking the elevator from macro to the micro floor, Delta Airlines’ Wednesday communiqué illustrated why discretionary travel pricing power is being decimated. Per CEO Ed Bastian: “With broad economic uncertainty around global trade, growth has largely stalled. In this slower-growth environment, we are protecting margins and cash flow by focusing on what we can control. This includes reducing planned capacity growth…while actively managing costs and capital expenditures…Given the lack of economic clarity, it is premature…to provide an updated full-year outlook.”

This prompted Danielle and QI’s Dr. Gates to challenge one another to out-anecdata each other by way of inbox sales alerts. Subject lines follow:

Southwest Airlines: “$49 summer sale. Your tan is waiting”

American Airlines: “Catch our Europe sale before it’s gone”

United Airlines: “Flight deals of the week” highlighted deals with $100-handles to Florida and $200-handles to California all with dates of travel in summer months.

WINNER QI RESEARCH TOP PICK:

Margaritaville: “Did someone say free margaritas?”

Pushing deals out to prospective customers for slow times of the year is one thing, but these promotions cover peak travel season. Equity investors have taken notice. The S&P 500 Airlines index has plumbed over 100 points off a 300-ish base from recent highs in January through the latest print in April. This collapse translated to a -81.9% three-month annualized decline (red bars). Volatility is common for the Airlines index. Such downside extremes are anything but. Once again, the technical of the pandemic notwithstanding, the pullback in the three months ended April compares solely to the post-9/11 panic that ensued in the 2001 downturn and the Great Recession. Since 1998, the three-month compression through the beginning of April is a Top 10 Worst Performer since 1998.

Visibility isn’t just clouded for the airline industry, exacerbated as it is with a continuing raft of on-the-ground and in-air disasters. Yesterday, CarMax rang that bell too. In its quarterly earnings announcement yesterday, the nation’s largest retailer of used autos nixed its long-term guidance care of the “potential impact of broader macro factors.” Counter to the conventional wisdom of an imminent spike in used car prices, the fall in the stock price (ticker KMX, blue line) flags a continuation of the decline in used vehicle prices in the March CPI (yellow line).

And then there’s Houston, which has a problem. March’s Houston Institute for Supply Management report revealed yet more margin squeeze. Its Prices Paid index fell from 63.5 in February to 48.8 in March, a 14.7-point drop, reflecting falling prices for energy-related items (seen the falling rig count lately?). Executives noted that general and skilled labor are growing more costly while prices for energy-related items such as diesel, jet fuel and propane are on the decline. Like CarMax, Houston pulled its guidance: “There is too much economic turmoil at present to provide a three-month forecast for the overall, manufacturing, and nonmanufacturing PMIs. However, all data are indicating downward pressure.” When in doubt, what more can we do but order up another dose of comfort in the form of a bacon, egg and cheese on a roll. And make it snappy! The market’s opening for one more day this week.

In roulette, the casino has the upper hand. This reality raises an important question: How could you increase your chances of winning while minimizing the House’s edge? One intriguing method is betting on repeating numbers. Also known as a ‘repeater,’ it’s a number that shows up more than once on the roulette wheel within a specified number of spins. Players keep an eye on repeaters believing they’re lucky numbers that suggest a higher probability of showing up again, even absent statistical proof to back it up. Hypothetically, you have a small bankroll that would cover, say, 15 spins. Under such circumstances, the odds of a repeater equals the probability the number doesn’t show up in any of the 15 spins subtracted from one, or ~33%. Clearly, the odds are still stacked against you; repeater betting strategies in no way guarantee success. However, it’s a relatively rational vis-à-vis random betting. Players who follow a system are more likely to make calculated decisions, which can lead to better outcomes.

Applying the repeater strategy to financial markets is akin to maintaining a position in a momentum trade. The thing is, the whiplash across asset classes effectively rendered said strategy useless in recent trading sessions. Enter President Trump announcing a 90-day pause on non-retaliating countries whilst raising China tariffs to 125% effective immediately yesterday afternoon. Risk assets soared on the former. But the minute China’s re-retaliation hits your inboxes, a repeat of yesterday’s rally would seem unlikely.

To say things got ‘real’ in financial markets before Trump punted is an understatement. At the highest point of the day, the U.S. 10-year nominal Treasury climbed to a 4.47% yield, up 46 basis points (bps) from last Friday’s close (light blue marker). Underpinning the move was a jump in 10-year TIPS yields to 2.28% at its intra-day apex. The jump in real yields over the last four trading sessions totaled 50 bps (fuchsia marker).

Contextualized, this was the 11^th largest four-day move on record, placing it in the 99.8^th percentile (not a typo). The rub: nearly every top 10 trading days were either during October 2008, the month following Lehman’s failure, which defined the worst recession since the Great Depression, or during March 2020, the month when the first global pandemic in more than a century exploded. Is that real enough, for you?

Throughout the daily volatility, repricing in credit markets has stood out. Using the valuation method of spread to all-in yield revealed that despite the visible backup in spreads in investment grade (IG) and high yield (HY), neither gauge hit levels that would be considered cheap, to say nothing of cheapest. To wit, the IG spread to all-in yield rose from a low of 14.9% in January to 22.0% thus far in April (lilac line), below the long-run average of 30%. Moreover, the HY spread to all-in yield also rose from a low in January of 36.3% to the current 52.2% (green line). That still left it under the 58% long-run average.

To be sure, for the IG metric, the latest reading still landed below points consistent with the start of the 2001 and 2007-09 recessions (lilac dashed line). The HY gauge, however, was a lot closer to the level that corresponded to the start of those two prior economic downturns (green dashed line).

The Federal Reserve’s unwritten third mandate, financial stability, has been top of mind amidst extreme market volatility. Even the casual Fed watcher in your shop might have tabled the risk of an intermeeting move after the last few days’ huge swings. Today’s U.S. economic calendar brings anew to focus the Fed’s dual mandate, at least for one day, with the consumer price index and initial jobless claims as the main events. The former, time stamped March, is somewhat dated in the current environment, rendering the latter more important for judging emerging risks of recession.

A repeating channel check for jobless claims comes via Google Trends. Search interest for “File Unemployment” has continued to run higher on a year-over-year (YoY) basis (orange line) relative to the raw figure of initial jobless claims (purple line). To be sure, the big data are capturing the movement in unemployment filings in spirit, suggesting the bias is upward for headline seasonally adjusted initial claims number versus the 223,000-consensus estimate. At this juncture, even mild upside surprises for initial claims would put further upward pressure on continuing claims that were reported at a cycle high last week.

One positive development for investors undoubtedly thirsting for good news that doesn’t rob all the trade war risks. No one can ‘fight the tape’ of a temporary reprieve. Cycle chasing takes diligence in the face of swirling crosswinds. To that end, the fourth chart in today’s quad guide maps economic risks. The deteriorating progression from soft to hard data is the recipe to follow.

The soft data element of the Labor Shock Indicator (sum of University of Michigan’s Higher Unemployment Expectations and Conference Board’s Fewer Jobs, yellow bars) advanced by a record in the four months ended March. Check. The BB-BBB credit spread dislocated to 159 bps this week (blue line), in line with the long-run average. The Mason-Dixon line between high-grade and junk land has done a yeoman’s job in tracking the layoff cycle over multiple cycles. The next shoe to drop – or technically rise, on the chart – would be the hard data of initial claims (red line). As April unfolds, the risk for higher claims is palpable given elevated uncertainty. A realization from these hard data would be a repeater of past business cycles.