I think there is a real problem in having a Great Slowdown next year as we are yet to fully recover from the Great Recession. The Treasury rate for short-term bills has never gotten above the inflationary rate and even at 2.5% the rate was inflationary but where was the inflation?
One thing I don't see taken into account is consumer debt (see figure) that is at an all-time high.** Is the consumer about tapped out?
Ben Mohr, senior research analyst of fixed income at investment consultant Marquette Associates, calculated that total U.S. consumer debt hit $14 trillion in the first quarter of 2019, surpassing the roughly $13 trillion of leverage accumulated in credit cards, auto loans and mortgages and other debt back in 2008, when those souring loans and securities pegged to them helped to send global markets into a tailspin**
And personal bankruptcies are on the rise again:
Bankruptcy petitions for consumers and businesses are on the rise. There was a 5% increase in total bankruptcy filings in July 2019 from the previous month, the American Bankruptcy Institute said this week. There were 64,283 bankruptcy filings, up from 62,241 for the same period last year.
There were 452,797 filings in the first seven months of 2019, up from 450,568 during the same period last year. There were roughly 1,000 more consumer bankruptcies at this point this year, compared to the same point last year, the organization added.
The recent bankruptcy data shows many consumer and corporate filings last month were coming, from southern states. Alabama had the highest per capita rate, with 5.61 filings per 1,000 people, followed by Tennessee (5.39) and Georgia (4.31), Mississippi (4.25) and Nevada (3.79).***
Note added August 27, 2019: The 2 yr Treasury yield now exceeds the 10 yr by more than 4 basis points. This is called an inverted yield curve, a sign that a recession may be coming.****
Note added September 12, 2019: For some days, the Treasury yield curve has been no longer inverted; however, the 2 yr Treasury is still very close to the 10 yr Treasury (by 0.004-0.007%).
Note added September 02, 2019: Here is a reference to an article showing a number of plots suggesting a recession is coming. (https://www.cnbc.com/2019/09/02/heres-a-list-of-recession-signals-that-are-flashing-red.html)
In the second quarter, gross private domestic investment tumbled 5.5%, the worst since the fourth quarter of 2015, according to the Commerce Department’s quarterly GDP report.
In addition, corporate profits are declining that maybe do to some extent from companies absorbing some of the costs of tariffs (see fig.).
(Click on figure to enlarge)
Among other dismal signs are a decrease in manufacturing for the first time in nearly a decade and small businesses are worried about an economic slowdown.
https://www.cnbc.com/2019/08/22/manufacturing-sector-contracts-for-the-first-time-in-nearly-a-decade-according-to-ihs-markit.html
https://www.cnbc.com/2018/12/10/small-business-optimism-dips-over-fears-of-an-economic-slowdown.html)
So what do you think? I think we can't stand a Great Slowdown so soon after the Great Recession.
* https://www.wsj.com/articles/the-dreaded-earnings-slowdown-is-here-11549888201
https://www.cnbc.com/2019/08/21/morgan-stanley-risk-of-a-global-recession-is-high-and-rising.html
** https://www.marketwatch.com/story/us-consumer-debt-is-now-breaching-levels-last-reached-during-the-2008-financial-crisis-2019-06-19
https://www.cnbc.com/2019/02/21/consumer-debt-hits-4-trillion.html
*** https://www.marketwatch.com/story/more-people-filed-for-bankruptcy-per-capita-in-these-5-states-in-july-and-there-was-a-5-increase-nationwide-2019-08-06
**** https://www.cnbc.com/2019/08/27/us-treasurys-investors-monitor-trade-developments.html
