Weekly Economic & Financial Commentary: Yield Curve Signals Recession on the Horizon

Summary

United States: Payroll Growth Sizzles in June Despite Recession Fears

• June brought a strong 372K payroll gain, beating the consensus and calming recession concerns. The unemployment rate held at 3.6%. Total job openings remain highly elevated but fell by 427K to 11.3 million in May. The ISM services index edged down to 55.3 during June, marking a two-year low. The trade gap narrowed to $85.5 billion in May as exports rose at a slightly faster pace than imports.
• Next week: Consumer Price Index (Wed.), Retail Sales (Fri.), Industrial Production (Fri.)

International: Some Cracks in Canada’s Economic Outlook

• The past week saw some underwhelming news from Canada. June employment unexpectedly fell by 43,200, and while the Bank of Canada’s Business Outlook Survey reported solid sales over the past three months, it also signaled a slowing in sales going forward. We expect Canadian GDP growth of 3.9% in 2022, but growth of just 1.5% in 2023. In Scandinavia, Sweden’s GDP rose in May, while Norway’s mainland GDP fell. Finally, the Reserve Bank of Australia raised its policy rate 50 bps at this week’s monetary policy meeting, as expected.
• Next week: U.K. GDP (Wed.), Bank of Canada Policy Announcement (Wed.), China GDP (Fri.)

Interest Rate Watch: Yield Curve Signals Recession on the Horizon

• The yield on the two-year Treasury note moved above the yield on the 10-year Treasury security this week. An inverted yield curve has historically been a reliable indicator of a looming recession.

Topic of the Week: Collapse Goes the Commodities

• The Commodity Research Bureau’s All Commodities Index ended Thursday down 1.9% over the week, while Bloomberg’s measure slid 1.6% over the same period. The slide has been broad-based, with major declines in products stretching from copper to soybean oil.

Full report here.