DEUTSCHE BANK: All of our recession indicators are flashing red right now, but …

Revelation 6:5-6 [recession indicators are flashing red right now]

Article By: Business Insider

Deutsche Bank’s top European equity strategists published a big note on Tuesday examining the risks of a US recession. In short, all the warnings signs that preceded the previous 3e recessions are here. This time, however, there may not be reason for all-out panic.

“We agree w/our economist’s projection of a 30% recession probability over the coming 12 months,” Sebastian Raedler, head of European equity strategy, & his team wrote in the note.

Here are the 4 indicators that popped up before the recessions in 1990, 2001 & 2008, according to Deutsche Bank:
(1) There’s already a recession for US profits. They’ve been sliding since they peaked in the 2nd quarter of 2014.
(2) The Fed’s Labor Market Conditions Index, a tracker of multiple indicators, turned negative in August. A subzero reading was followed by a recession 5 times in the last 40 years.
(3) Capital-expenditure growth has turned negative, down 2% over the past year.
(4) Default rates are rising.

DB recession indicators COTD

Like Deutsche Bank’s strategists, the rest of the market is not worried that these things would cause an immediate recession either. In fact, they are pricing in a 1986-style scenario. That year, all the same recession indicators were present, but the recovery continued for another 4 years.

The consensus forecast is for US earnings growth to rebound next year & measures of stock-market volatility are low.

Raedler noted a few other things that made the absence of a recession in 1986 look unique. It was the only year in the previous 60 when US corporate margins declined w/out this leading to a recession. It was also the only period in 40 years when a recession did not happen even though capital-expenditure growth declined. But there are a number of reasons to be cautious, the strategists said.

For 1, that 30% probability of a recession could rise if indexes measuring the services & manufacturing sectors fall any further, Raedler said. In August, the Institute of Supply Management’s manufacturing index showed that the sector contracted.

Besides that, Raedler said corporate profit growth is likely to remain weak, as the cost of labor continues to rise. Monetary policy also may not be as supportive of the economy as it was in 1986. The Federal Reserve’s readiness to raise rates could nudge the dollar higher — a move that would make US exports less attractive.

View full article at: http://finance.yahoo.com/news/deutsche-bank-recession-indicators-flashing-165228200.html

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