11 Charts Predicting a Recession is Coming

Let the words of the 998th Lord Commander of the Night's Watch set in for a moment. The debate between U.S. economists, politicians, corporates, financiers, and the media about whether the U.S. is currently or will be entering a recession has gone on for more than a year now. At one point last year, everyone was predicting a U.S. recession. One year later, many have reversed their positions. According to Bloomberg , “Some of the forecasters who were first out of the box to predict a U.S. recession are starting to hedge their bets...” Just last week, Goldman Sachs lowered the probability of a recession to 20%—this was after Fed policymakers said earlier this month that it is “quite likely” the U.S. will enter a recession later this year and the Fed just increased interest rates to their highest level in more than 22 years.

The seesawing of recession predictions appears to have the brightest in our industry questioning their own forecasting . In my opinion, this is wrongheaded. The foundational elements of a recession have not changed—so neither should our predictions.?

The most compelling reasons for why the U.S. will escape a recession are : a) “Consumers still have some unspent savings from the pandemic stimulus; b) businesses will be slow to lay off workers even if conditions worsen, because talent is hard to find; c) household and business debt loads are light; d) inflation expectations are low and well-anchored, so the Fed can relax; and e) oil prices have receded.” But even these points together only explain why we have not yet entered a recession.?

What I am about to show you in the following charts makes clear that winter is coming. Why? Because the U.S. consumer is under serious financial stress.

CHART 1: Consumers Feel the Pain.?50% of Americans feel they are?financially worse off?now than last year. –?Axios

CHART 2: Defaults are Back.?Corporate defaults rose last month, with 81 in the U.S. so far this year. That’s more than double the same period last year. –?CNBC

CHART 3: Car Loan Payments Piling Up. Consumers with low credit scores are falling behind on their auto loans at a record rate—even higher than during the Global Financial Crisis of 2008/2009.?—?Axios

CHART 4: Loan Rejections are Up.?The 12-month rejection rate for auto loans was 14.2 percent in June — a new high — up from 9.1 percent in February. –?USA Today

CHART 5: Debt is Soaring.?Debt balances now stand $2.9 trillion higher than at the end of 2019. –?Federal Reserve

CHART 6: Delinquencies are Up.?Delinquencies for adults under 30 is 4 times the national average, sitting at 7%. –?St. Louis Fed

CHART 7: Balances are Rising.?Americans owe nearly $1 trillion in credit card debt with an average credit card balance of nearly $6,000. –?Federal Reserve

CHART 8: Savings Have Evaporated.?Households have burned through their pandemic savings. –?JP Morgan Asset Management

CHART 9: Chapter 11s are Climbing. U.S. Chapter 11 bankruptcy filings jumped 68% in the first half of 2023 from a year earlier.?–?Reuters

CHART 10: Demand for New Homes is Slowing.?Demand for new homes has faltered as buyers are struggling to afford higher mortgage interest rates.?–?US Census

CHART 11: Recession Signals are on Fire.?The?Leading Economic Index provides an early indication of significant turning points in the business cycle and where the economy is heading in the near term. The Leading Index has been in decline for fifteen months—the longest streak of consecutive decreases since 2007-08, during the runup to the Great Recession. –?Conference Board

Secretary Yellen says, “People stop buying things, and that is how you turn a slowdown into a recession.” I’m not sure what data one needs in addition to the 11 charts above to make it very clear: the U.S. consumer is on the verge of becoming moneyless.?

The fact of the matter is, it’s been government stimulus that has propped up consumer spending and job growth. Nearly $5 trillion has been pumped into the U.S. economy since the outbreak of Covid-19, much of it done under Bidenomics including:

• The $1 trillion Infrastructure Investment and Jobs Act of 2021;
• The $278 billion on energy projects, including highly stimulative tax credits;
• The $500 billion Inflation Reduction Act; and
• The $5 billion per month in student loan forgiveness.

We have not seen this much government spending since the 1930s. Ultimately, the spending we’ve seen has only delayed the inevitable as billions in direct cash assistance comes to an end for millions of Americans.

Thirty-seven million federal student loan borrowers have not had to repay their loans since March of 2020. Come September 1, 2023, 36 million of them (Biden recently cancelled loans for?804K?borrowers) will have to start repaying their loans, which could amount to as much as $18 billion per month if you include interest and principal repayments. That’s over $200 billion per year that will go to debt repayments rather than the purchasing of flat-screen TVs, iPhones, and Ford F-150s. These debt repayments will further stress an already stressed-out consumer; they will have no choice but to pull back–and stop spending.

"The student loan thing is not, in and of itself, enough to cause a recession, but if you do have a downturn, it could be a kind of death by a thousand paper cuts," said Jay Bryson, chief economist for Wells Fargo.

We need more recession believers / Rangers because winter is coming and we know what’s coming with it.