Economic Expansion

If you are new to The Rhythm of the $ystem, go ahead and check out the beginning of the series where I introduce The Economy Tracker. Doing so will help you better understand the information in this post:

Current Reading

According to The Economy Tracker, the US Economy rolled back into the Expansion phase at the end of the year. Economic conditions have improved significantly over the past several months as stimulus from the Inflation Reduction Act and Chips Act runs its course through the economy.

Why the wait in posting this update?

I’ve alluded to the absurd amount of bad information regarding markets and the economy in the past, and I did not want to add to the confusion. After watching the tracker move into a slight recessionary reading a year ago and then steadily retrace back through the Slowdown phase and into Expansion along with the economy, I should have enough confidence in it by now. However, this cycle has taken a different path than most. So I wanted more assurance.

Now the markets and economic data are confirming that this is and has been the case.

Shame on me. I won’t make that mistake again as the last few months have given me even more confidence in the Economy Tracker.

Below is the tracker that I shared with clients in the January meetings.

Examples from the Data

As of this writing, over 60% of the data points that make up The Economy Tracker reflect what they typically experience during an economic recovery and expansion. Data such as GDP, corporate profits, the use of leverage, and corporate profits, to name a few.

For instance, an improving GDP.

*Image and chart courtesy of U.S. Bureau of Economic Analysis

Corporate profits hold the upward trend and continue to grow.

Yield curves remain inverted. Check.

Capital Expenses begin rising once again. Check.

What to expect next.

Based on what the economic indicators and stock market performance are telling us, the economy is in the early stages of a new expansion. Barring any new developments laid out in the What Changes the Current Path section of the 2024 Forecast, you would expect this to continue.

Each credit cycle has a distinct personality as the world and economic conditions are different during each one. The current cycle has been moving through the phases quicker than usual, so best to expect that to continue at this later stage.

When the economy goes through the phases a second time in a cycle, the phases are typically shorter in duration and shallower in their gain than their first.

Keep in mind that the stronger the economic data is moving forward, the less inclined The Fed will be to cut rates.

As of now, the course is set for the economy to continue expanding in the coming months. You don’t want to bet against it here.

*The following is not investment advice and merely the thoughts of the author. Consult a CFA or CPA for professional advice as it relates to your situation.

What To Do During This New Economic Expansion

While we have re-entered the Expansion phase of the current credit cycle, this is not the time to YOLO by buying new toys or autos. On the contrary, this appears to be a gift that you can use to pay off or sell any liabilities for which you are still making payments.

Doing so will strengthen your financial situation for what might be a tough road in another year or so.

This way you will be able to weather the storm brought upon by a future recession much easier and be ready to benefit the most when it is time to put your money to work.

Think of this re-strengthening of the economy as a gift and an opportunity. Be thankful and use it to build a stronger financial fortress for more difficult times in the future.

But more than anything, don’t buy into the bullshit headlines and scary articles. History is littered with “Crash” warnings at the best of times, and this is no different. Instead, be grateful for the position of strength that the economy is currently experiencing. You want to take advantage of these opportunities to max out on your potential gains during this cycle. The economy is back in the sweet spot, so take full advantage by getting your financial house in order if it is not.

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