Growth Cycle Outlook: 2022 Will Not be 2021

Not much has changed in regards to my economic growth outlook going forward since my most recent growth cycle update. We continue to be on the precipice of a material decelerate in growth due to hit markets in the coming months as predicated by the leading indicators of the growth cycle. For now, growth did indeed rebound to some extent in Q4 of as many predicted it would.

The following chart highlights various coincident growth metrics, which give us an up-to-date view of where we are generally in the growth cycle and where we have been. These coincident metrics include real manufacturing and trade sales, non-farm employment, industrial production, real personal consumption and real incomes excluding-stimulus payments. On the whole these metrics give us a broad view of coincident economic growth and as we can see below, growth peaked around April 2021 which coincided with the peak of the reflation trade.

Indeed, if we look at the market performance of some of the most pro-cyclical stock market sectors as a means to assess the reflation trade, we can see their relative performance compared to the S&P 500 peaked in and around Q2 2021. We did again see relative outperformance in late Q3 as these areas of the market began to price in the Q4 growth bounce, though this was short-lived relative to the reflation trade that look place from late 2020 and into 2021.