M1 is falling almost as fast as it during the Great Depression
The last time the yield curve (the gap between the 10-year bond yield and the "cash rate"/Fed Funds rate) was this negative was before the deep 1974 recession and the deep and long 1980-1983 recession.
The Fed Funds rate has risen as much as it did during the '74 and '80-'83 recessions.
Banks' willingness to lend is collapsing, and banks are tightening credit standards. This is not yet at levels seen in the GFC, but the data are quarterly, so we don't know what's happened in the most recent three months.
I wrote the piece I linked to above a year ago.
The lag between a sharp rise in commodity prices and the subsequent economic downturn is quite long --- 24 months, though it has been as short as 12 months.
All 5 Factors
If we combine all these indicators into one index, we get the chart below. As an "average" of five indicators, it isn't as severe as some of its components. On the other hand, it has not yet bottomed.
What seems clear enough is that there is likely to be a US recession. How long and how deep it gets depends on whether there is a banking crisis, whether the Fed raises rates further, and whether the post-Covid rebound in services continues. I'll keep you posted.
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| Note that where the 5 factor index appears to coincide with recessions, that's because it has been plotted with a 12-month lag. |
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