Despite some horrendously wrong predictions, there hasn’t been a recession since the COVID-19 pandemic. But the last few weeks show that things have been changing for the worse.
It’s something investors should consider carefully because certain assets do better in a recession than others, history shows.
Shrinking Loan Problems
At the top of the list today is the paltry growth of commercial loans and leases. Its a measure of credit growth, which many people realized was key to any growth at all during the Great Recession of 2007-2009.
Since then there’s been downward trend. By November the annualized growth rate had settled at less than tone third of one percent — 0.3 % to be precise.
That’s far below the annualized inflation rate seen in November which was 3.1%, according to Trading Economics.
Perhaps more important, it shows that the real, or inflation adjusted, volume of loans and leases is declining.
If the growth rate of these types of credit had kept up with inflation then we would expect to have seen approximately 3.1% in annualized growth in November. We didn’t. We got one tenth of that, approximately.
Worse still, even if the U.S. banking sector had growth its lease and loan book by 3.1%, that would have been zero growth when adjusted for inflation.
The important thing about this key indicators is that the economy simply cannot growth without sustained loans and lease growth. And if the loan and lease growth doesn’t keep up with inflation then we effectively get contraction in the economy. In simple terms, if this trend doesn’t change then we are most likely to see a recession.
Money Shrinking
There’s another key indicator which tells us a similar story.
The amount of money in the economy is declining rapidly. Money includes bills and coins, but also bank deposits and similar. The measure, known as M2, has a broad definition and you can see the detail here.
However, what matters is mow much it grows or shrinks. This year M2 has shrunk $21.5 trillion on January 9 down to $20.8 trillion, again according to the St. Louis Fed database.
To put that in perspective, M2 rarely, if ever drops so much or so quickly.
Why does this matter? The best way to think about money is that it is the lubricant that keep the economy turning over. It’s similar to the way that a car or truck works. If you don’t put enough oil in the vehicle then the engine will cease up.
Likewise, without enough money in the economy, business won’t be able to happen with the same vibrancy as it normally does. The fact that it has shrunk so dramatically lately should be a worry to most investors.
If the downward trend doesn’t reverse or at worst stop shrinking then the U.S. economy could sink into a recession. That something that will hurt the global economy as well, history shows.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
