Economic Slowdown

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 is currently in the Economic Slowdown phase of the credit cycle. This is a late-stage phase which is preceded by an Expansion and is typically followed by a Recession.

Examples from the Data

As of this writing, over 45% of the data points which make up The Economy Tracker reflect what they typically experience during an Economic Slowdown. Data such as inflation, yield curves, the use of leverage, and corporate profits, to name a few.

For instance, during Economic Slowdown’s you see inflation moving lower but still higher than it’s 2% target. Check.

*Image and chart courtesy of SlickCharts

The yield curve begins to steepen after inverting. Check.

*Image and chart courtesy of the FRED

*Image and chart courtesy of the FRED

The use of leverage continues it’s trend higher. Check.

*Image and chart courtesy of the FRED

And corporate profits begin to come under pressure. Check.

Does this mean a a Recession is imminent?

Nope. It could be, but it’s far from certain at this point.

In fact, there’s a case to be made that a recession will not occur as it is the one phase of the credit cycle which is not guaranteed. With that being said, it is a highly probable occurrence as very few cycles have ended without one.

Even if a recession does occur, it does not mean that it will be severe or long. In fact, many times they are ending right when most people realize that they are occurring.

Keep in mind that credit cycles and the phases within take time to play out. Just because we are in a slowdown does not mean that a recession or worse is imminent and/or that it will be severe.

*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 personal situation.

What To Do in an Economic Slowdown

Economic Slowdown’s are a time to be cutting unnecessary expenses and stacking cash.

Find a few bucks every month to cut out of your expenses. Things such as unneeded or lesser-used subscriptions and fewer or cheaper entertainment options. Those savings can then be applied to the increasing food, shelter, and energy prices which typically accompany the Slowdown phase. More importantly, the Slowdown is when you want to be adding any left over money to your savings. Now is the time to protect yourself, NOT buy a new car or luxury items. If a recession hits, you might need that cash.

The tail-end of the Slowdown is one of the economy’s more deceptive times as it is a period in which it seems like the worst is behind us, but it could just be the eye of the storm and a surge is about to hit.

Best not to take any unnecessary risks here as the economy can deteriorate quickly resulting in mass layoffs. Those jobs and businesses which seemed secure and safest can disappear in the blink of an eye.

If money is not a concern for you and you must spend a chunk for some reason, put it towards something that will reduce a major cost. Such as adding insulation to your home to reduce your energy costs.

What to Watch for Next

In the next post I’ll point out what clues you want watch for direction in the coming months.

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