The surprising financial health of the average consumer and corporation lead us to believe that harder times may be still further out. In looking at our last recession in 2008, we see that we are considerably less leveraged now than we were 14 years ago. In fact, corporations are not yet back to averages seen when a recession is more than a year out (see below). And while consumers may be just starting to trend the wrong way with savings and debt due to the strains created by inflation, payroll numbers have remained strong.
As always, we remain committed to the long term, data-driven approach. When pessimism abounds, it may be time to get (or remain) optimistic.
Source: BlackRock, Bloomberg, Chicago Fed National Financial Conditions Leverage Subindex (“CFNFCL”), National Bureau of Economic Research (“NBER”), as of 6/15/2022. The NBER defines a recession as a significant decline in economic activity that is spread across the economy and lasts more than a few months. Per NBER, “recession is the period between a peak of economic activity and its subsequent trough, or lowest point.” The CFNFCL is constructed to have an average value of zero and a standard deviation of one over a sample period extending back to 1971. The CFNFCL consists of debt and equity measures. Increasing risk, tighter credit conditions and declining leverage are consistent with tightening financial conditions. Thus, a positive value for an individual subindex indicates that the corresp onding aspect of financial conditions is tighter than on average, while negative values indicate the opposite. Payroll Proxy constituents: Wages represented by the US Average Hourly Earnings Private Nonfarm Payrolls Total Nominal Dollars Index, Hours represented by US Average Weekly Hours Private Nonfarm Payrolls Index, and Number of employees represented by the US Employees on Nonfarm Payrolls Total Private Index.
Jeremy & Eric