The Growth Slowdown Is Not Over Yet

Summary & Key Takeaways

  • Both the leading indicators of growth and liquidity continue to suggest growth will slow as 2023 progresses. The housing market and the inventory cycle in particular are still material headwinds to growth, while we are still unlikely to have fully felt the ill effects associated with the tightening of financial and monetary conditions over the past year.

  • However, we are beginning to see some of the longer-term leading indicators inflect positively, suggesting we will see a bottom in growth at some stage this year which should in turn begin the next growth cycle upturn as we enter 2024.

  • For now, patience is still warranted for investors, particularly in relation to credit risk, while bonds appear to offer the most upside from a business cycle perspective over the next six to twelve months.

The current state of economic growth

When assessing the business cycle, the coincident measures of economic growth are an excellent place to start. Rather than predicting the future direction of the cycle, coincident growth metrics allow us to assess where we currently stand within the business cycle and define the trend; be that recovery, expansion, slowdown or contraction.

In similar fashion to how the NBER assesses the business cycle and uses various inputs in its recession determinations, I prefer to look at the current trends in economic growth through a broad array of indicators which cover all areas of the economy. These include such data points as industrial production, consumption, employment and incomes, among others.