CNR Speedometers^®

The key takeaway this month is that, while we have once again nudged higher our Gross domestic product (GDP) forecast, shifted to the right, the timing of the recession into the first half of 2024, because of our hire-for-longer forecast, we continue to believe a mild recession is the most likely outcome.

Before diving into the details of our Speedometer® changes, let me start with a brief update for you on the key details from our recent webinar.

Continuing on the path we've been on for the past few months, because of a stronger-than-expected level of spending by consumers, and a longer and more variable lag from interest rate hikes than history and the Leading Economic Index® (LEI) would suggest, we are also, once again, increasing our estimates for GDP activity in 2024. We are lowering our recession risk to 60%, and, most importantly, removing the risk of a normal recession.

Additionally, we shifted the start of a mild recession into the first half of next year. This will set the stage for a modest recovery in the second half of 2024 that should continue into 2025. The path of corporate profits will follow the path of economic activity, bottoming in the next few quarters, and then setting the stage for recovery in the second half of 2024.

Details of our forecast, which are modestly below consensus forecast, are available on the website.

Dial Updates: 1:46 — Reflecting these changes, we are also shifting several of our key dials in our Speedometers®. We have five positive shifts of the dial, and one negative shift this month.

With the downward glide path of inflation expected to continue, we've shifted that dial for the second time since March into the yellow zone.

With the Fed at, or near, peak levels of interest rates, we have shifted the dial for Monetary Policy for the second time and are now in the yellow zone.

The yield curve has been inverted for one of the longest stretches in the post-war era. In the next six to nine months, we believe the trend toward normalization that we've witnessed over the past few weeks will continue, so we've moved that dial into the yellow zone.

The leading indicator index, which also has been negative for a very long time, will also start to improve, so for the second time, we've shifted that dial into the yellow zone.

To reflect a bottoming out in corporate profit growth, and in anticipation of resumption of growth, most likely in the second half of ‘24, we've moved that dial as well.

The one negative shift is that the Energy Cost dial has moved to the left, reflecting the recent higher move in the price of oil that should likely remain high during the winter months, and that could have a negative impact on the economy.

Summary: 3:04 — In conclusion, while we have once again nudged our GDP forecast higher, shifted the timing of the recession to the right, and reduced the risk of recession, because of our higher-for-longer forecast, we continue to believe a mild recession in the first half of 2024 is the most likely outcome.