April 3, 2024
By Harris L. Kempner, Jr., President

For us it is still the same song, but the third verse. We still expect a recession to appear on the scene sometime later this year, although this is the third time we have pushed back the date of the recession that is expected. We now expect it to begin in the 3rd quarter of 2024 and be a very mild one at worst.

There are a considerable number of strengths in the economy. One that is the most evocative to us is that while nominal growth has slowed, inflation has come down even more, and so the economy actually has had real growth in the last year. Specifically, according to Ed Hyman at Evercore ISI, nominal growth has slowed from 16%, down to approximately 6%, but inflation in the last year has slowed from 8% to about 3%. So actually, real growth has accelerated from 1% to 3% according to their calculations. This basic underlying strength in the economy is the reason we have had to put off our date of reckoning.  

But still, we are facing the same unprecedented money tightening. The Fed balance sheet is receding, and money supply is falling steadily. We have had the interest rate inversion of short-term rates higher than long-term rates for over 14 months, which is getting into the standard length of time that it takes for these inversions to start showing up in economic slowdowns. Further, as of yesterday’s reports, the large, services portion of the economy came up very weak with the services PMI, prices, and deliveries all dropping significantly.

Furthermore, of course, there is the increase in world tension, which is not solely the two wars in Gaza and in Ukraine which we discussed in a previous newsletter. Now there is the potential of substantially widened activities in the Middle East after the Israeli attack on an Iranian Consulate in Syria, which killed multiple people, including a top Iranian General. There is no doubt in my mind that Iran will try to find a mechanism to respond to this. How and when is absolutely uncertain. This just adds one more de-stabilizing aspect to the world’s economies.

So, all in, despite the very real present strength of significant parts of the U.S. economy, we still believe that all these features of weakness will be causing a significant slowdown leading to a recession sometime in the 3rd quarter of 2024.