The latest data released this morning presented employment numbers (and wage growth) that were underwhelming, relative to expectations.
The chances of a Fed rate hike in 3 weeks has now likely diminished, a bit.
However, one of the key indicators that we are following on this blog and via our weekly client webinar is the relationship between the unemployment rate and the 3 year (36 month) moving average unemployment rate and how its convergence has historically been foretelling of the next recession:
After July's number, the convergence gap (38 month moving average vs. actual unemployment) stood at .09% = 5.8% - 4.9%
As of today's data, that convergence gap has narrowed by .4%: 5.4% (new 36 month moving average) - 4.9% (August unemployment rate = .05% convergence gap.
So the rapid narrowing of this gap, puts a US recession at about 3 months away (if it continues to narrow at this pace).
That also coincides with the timing of the US presidential election.
Will the Fed assist this process by creating a flatter yield curve on September 21 (by raising interest rates)?
That does make things interesting.
Historically, recessions are not good for stock markets.
Feedback, ideas, questions...
If you would like to receive this blog directly into your inbox...
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist