I’ve been placing collectively my Q2 quarterly shopper name, and impatiently ready for 2 final knowledge factors to point out: State Coincident Indicators and Q1 GDP. Collectively they paint an enchanting image of an financial system sturdy sufficient to resist the quickest set of charge will increase in historical past, but additionally one that’s displaying indicators of slowing. (Crosscurrents of those varieties aren’t unusual in a world that’s rife with shades of gray…)

GDP for the primary quarter of 2023 was 1.1% – decrease than Wall Road’s 2.0% consensus — but additionally included a consumption achieve of 4%. Core PCE was an elevated (however improved) 4.9%. Shoppers are nonetheless spending, however in lots of areas, it’s a case of value over quantity as a result of influence of elevated (however slowing) value will increase.

Maintain these two ideas in your thoughts on the identical time: We now have a strong and resilient financial system, however it isn’t Superman: It’s slowing in response to greater charges, elevated service costs, excessive actual property prices, and tightening credit score ranges.

Of the 50 states within the Philadelphia Fed’s State Coincident Indexes for March 2023, just one — Alaska — is destructive. “Over the previous three months, the indexes elevated in 49 states and decreased in a single, for a three-month diffusion index of 96.” The one-month diffusion index was 98.

This implies a slowing, however not essentially a recession. Final June,  we regarded on the prior six recessions going again to 1979. We presently see not one of the pre-recession warnings which might be typical earlier than financial contractions. Up to now, the State Coincident Index has been a reasonably dependable “early warning” of accelerating possibilities of recessions. Sometimes, we see state-by-state slowings a number of quarters (or typically years) prior.  As a substitute of most states displaying enlargement, earlier than recessions, that may drop to 45, 40, then 35 earlier than a recession begins; finally, the variety of increasing states then fall to 10, 5, or 0.

The takeaway from that is that there is no such thing as a recession imminent, and none on the horizon for the subsequent few months. This clearly may change quickly, most notably if the Fed overtightens or if credit score situations and availability get appreciably worse.

Beforehand:
The Tide of Worth over Quantity (April 21, 2023)

Indicators of Softening (July 29, 2022)

Are We in a Recession? (No) (June 1, 2022)

Sources:
State Coincident Indexes March 2023
Federal Reserve Financial institution of Philadelphia, April 26, 2023

Gross Home Product, First Quarter 2023 (Advance Estimate)
Bureau of Financial Evaluation, April 27, 2023