Weak retail sales, a steep drop in industrial production, and news of more job cuts have added to fears that the US could already be in recession.
That was the opinion of ING’s chief international economist, James Knightley, who pointed out this is the third consecutive month of contraction in industrial activity.
The decline in December was well below Street expectations with a fall of 0.7% month-on-month comparing to the market consensus of -0.1% while November’s number was revised downwards to a fall of 0.6% from -0.2%.
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Knightly noted manufacturing was responsible for most of the weakness with output falling 1.3% in December after a 1.1% drop in November with all the main sub-components lower, motor vehicles/parts down 1%, machinery down 3.4% and computer/electronics down 1%.
Mining fell 0.9% month-on-month, possibly reflecting weaker oil and gas prices, which may have disincentivized some drilling while bad weather may also have had an impact, Knightly said.
However, the cold temperatures boosted utilities, Knightly pointed out, with output up 3.8% with natural gas surging 8.2% on strong demand for heating.
But coming on the back of such a poor retail sales report it reinforced the message that recession is on its way and “we could in fact already be in it,” according to ING’s Knightly.
He pointed out that with The Conference Board’s measure of CEO confidence at its lowest level since the global financial crisis, companies are going to increasingly adopt defensive strategies so the strong jobs numbers cannot continue.
He highlighted, as an example, Microsoft's announcement of 10,000 job losses today. "Remember jobs are always the last thing to turn in a cycle given labour data is such a lagging indicator” he explained.
“More bad news will be coming in the months ahead with the Federal Reserve likely to reverse its rate hikes from late third quarter 2023 onwards,” he forecast.
Contact Jeremy at jeremy@proactiveinvestors.com