Good morning and happy Monday! The growing conflict in the Middle East continues to add pressure to an otherwise strained economic outlook for the United States and several other nations. We pray for a peaceful resolution to this conflict.

Now, let’s get on with economic indicators for last week:

Because nearly all of our investment clients grant us what is known as discretionary trading authority, keeping up with global economic changes is an important part of our client service work. As a financila planning nd investment management firm that is committed to doing independent research, we are forever grateful to the many excellent Economic aggregation resources that take the work out of gathering this data for us each day. They don’t give us analysis – that’s our job – but simply gather and present this information. Their vital service saves dozens of hours a week. We want to give a big shout-out (and a thank you) to CurrentMarketValuations, FRED, MacroMicro, TradingEconomics, and The Daily Shot. Though we use several more, these are our favorite places to see a daily aggregation of economic data, and you’ll often see their charts used here.

  • nFocus: Interest Rates and the Yield Curve
  • Jobs Update
  • Real Estate Update
  • Manufacturing Update
  • Leading Indicators and Consumer Confidence

nFocus: Interest Rates and the Yield Curve

The equity markets dropped last week, fueled by concerns about economic growth as the yield curve for U.S. Treasuries surged strongly last week. There is a lot to be said about the Yield Curve and its impact on economic activity, and we’ve discussed it at length in previous weeks’ updates, but for the uninitiated, you can learn about the yield curve here.

In a nutshell, a bond’s YIELD is a calculation of its INTEREST RATE, plus or minus the PRICE an investor pays to buy the bond.  If the investor pays more for the bond than its face value (because they are in high demand), the yield the investor receives will be lower than the interest rate the bond pays. If the investor pays less for the bond (because there is less demand for them), the yield on a bond is higher than the interest rate. So the yield takes into account both the interest rate the bond promises to pay to the investor, plus or minus any change in price for the bond due to market demand.

At the time of this writing (Monday, October 23, 2023, the current Yield Curve looks like this (on the left, with the S&P500 historical graph on the right):

The yield curve shows the borrowing costs for the federal government for different periods of time, with very short-term rates (the “Fed Funds Rate” being the leftmost point on the curve, and the 30-year treasury bond rate at the far right. Normally, this curve is much lower on the left and slopes upward as you go right (as it should: the longer you borrow someone’s money, the more interest you normally have to pay). You can see the recent changes by the “trail” on this chart, which indicates that the long end of the curve has risen dramatically in recent days and the overall curve has flattened significantly. This indicates that the yield curve is going to uninvert fairly quickly, which is when most recessions have begun in the past.


What makes this so significant is that all other interest rates are based on the ones the Federal Government pays. Your credit card, business loan, student loan, mortgage, auto loan, all of your borrowing, and that of businesses is based on these rates. And when interest rates rise, it does two things: it will incentivize you to save more money (since your bank is giving you more interest as it “borrows” your savings account and CD money) and significantly slows economic activity (it is now much more expensive to buy a house or car, start or expand a business, etc.).

Indeed, mortgage rates have hit 8% in the last week, the first time since 1995, which we will see in a moment is continuing to devastate the demand for mortgages:

These rate increases will slow business activity, as well, as small businesses typically take out adjustable-rate, 10-year business loans when they need them. Small businesses, which create approximately 75% of all of the jobs in the United States, are reporting 25-30% higher loan payments over the next decade due to these rate increases:

It’s also putting a serious strain on the Federal government, which has spent an alarming amount of money over the past three years that it did not have, and therefore had to borrow. The government issues its bonds in auctions, and because there is little interest in more federal bonds by investors, the price of those bonds keeps dropping, raising the overall yield:

As this deficit spending continues, and old bonds mature and have to be refinanced, the amount of interest the Federal government will have to pay out will consume more and more of the budget:

All of this is leading to tighter financial conditions across the board, slowing economic output:

Jobs Update

Jobs numbers are something we get weekly from the Bureau of Labor Statistics, and monthly from other sources like ADP. As I mentioned last week, I am now leery of the BLS statistics for a variety of reasons, and so are many economists who cannot reconcile the wide disparity between what the GOVERNMENT says hiring is doing, and what COMPANIES themselves are saying.

However, the official BLS numbers for last week show us that initial jobless claims dropped significantly from the week prior. Whether this holds up or is revised later (this is very common, especially for the last two years), we will see. It’s one reason why I tend to ignore initial claims and focus instead on the CONTINUING claims:


As I’ve said many times, it is the CONTINUING claims that we need to pay more attention to because these are people who have lost their jobs, have worked through whatever severance package they were given, and now still cannot find another job. Continuing claims, while still low at the moment, have moved up across the graph of several previous years over the last decade, and are now about middle-of-the-road.

When you compare the continuing claims to the last three “normal” years, however, we can see a strong trend toward more ongoing joblessness ahead:

What this means for you

We continue to watch employment carefully but it is a lagging indicator in terms of predicting a recession. Hiring typically stays strong right up to the start of a recession, because laying people off is the very last thing most companies want to do (or even have to do). However, once sales drop off and hours have been reduced, job cuts always follow. We anticipate a sudden spike in layoff announcements as the recession gets underway. Indeed, companies with more than 100 employees who are required to give 60-day advance notice of a layoff jumped massively this month:

This tells us that higher unemployment numbers are imminent. If past recessions are any indication of what is very likely ahead, look at how fast unemployment claims shot up in each of the last 7 recessions after the yield curve inverted (which ours has for 18 months and counting):

Real Estate Update

We read a statistic this week that 60,000 realtors have exited the industry so far in 2023, and that there are still currently 2 realtors for every 1 home on the market. Real estate, particularly commercial real estate, has long been where we believed a significant amount of economic harm would be felt, and we are starting to see that happen now.

The average interest rate on a new 30-year mortgage climbed to 8% last week.

This is simply crushing demand for home purchases and refinances.

This is significantly cooling off home purchases, both for existing homes and new builds:


We are slowly seeing existing homes for sale start to climb. It is the lack of homes on the market – so far – that has kept home prices elevated despite the high interest rates on mortgages. We do not believe that will continue long-term as many investment properties are put back on the market and, frustratingly, many families lose their homes due to unaffordable changes in property taxes and insurance. Plus, many recent buyers were told by their realtors to buy the home even at unaffordable interest rates because they anticipated the owner would be able to quickly refinance as rates dropped back down. With inflation remaining stubbornly high, we do not believe interest rates will decline significantly for at least another year.

But finally, with that slight rise in inventory, we are seeing a slight decline in home prices:

What this means for you

We continue to believe home prices will come down long before interest rates do. This is good news for home buyers but bad news for current homeowners. We recommend that you keep your debts minimal, clean up your credit score, and try to save as much as possible. If you are dealing with a high-interest mortgage that you thought you could refinance by now, you may have to adjust your budget, as we anticipate that it will be another 1-2 years before you can refinance your home at a measurably lower rate, and even longer if you have less than 15% equity in your home (because you may be “underwater” in terms of home equity).

Manufacturing Update

Once a month, each of the regional Federal Reserve bank districts report on economic activity in their areas. This past week, we got an update from the New York Fed and the Philly Fed. In both cases, they report their manufacturing and service sectors in recession:

The biggest challenge small businesses are reporting is that it is getting harder and harder to find a loan and they are paying MUCH more interest to get the ones they can. Banks are tightening up their lending requirements on small businesses because during recessions, many small businesses aren’t able to endure 12-36 months of lower revenue, and therefore default on debts at a higher rate than larger businesses:

The Philly Fed’s expected future manufacturing output was dire:

And alarmingly, and worth note: manufacturers also reported the expectation that they would be raising prices again in the near future. This does not bode well for the Federal Reserve’s fight against inflation, and may indicate that interest rates and other tightening measures the Fed is currently pursuing must continue or even be amplified:

What this means for you

We see nothing to change our view of the worsening economic trajectory we’ve talked about many times in this space. Manufacturing has been in recession all year, and finally, surveys of service companies are starting to get there, too. We believe we are actually already in a recession but it will take months before one is retroactively declared.

Leading Indicators & Consumer Confidence

Most of the data we look at are backward-looking, but it’s important to look at current and leading indicators, as well. It’s one thing to know where the economy has already been, but the value of this analysis for our clients is trying to determine where it is headed.

Consumer confidence is both a current and a leading indicator because it gives us insight into how you and I will spend our money. If we are confident about our future prospects, we will be willing to make a major purchase or go into debt, which in turn spurs economic activity. If we are fearful, though, we tend to pull back on spending and the economy slows down naturally.

The University of Michigan puts out a monthly Consumer Sentiment index. Although consumers are feeling slightly better than they did in the middle of 2022, the trend has now sharply reversed back down and came in well below what analysts protected:

Expectations of consumers going forward also took a significant hit last month, as people worried about their future prospects. This typically means less spending and borrowing in the coming months.

Another survey created by Investors’ Business Daily showed similar, major drops in optimism among both individuals and businesses, with the six-month outlook falling much worse than expected:

One anecdotal piece of data that crossed our desk this week bears out that consumers are struggling right now – the number of subprime car loans in a state of “serious” delinquency is the highest ever recorded:

The Conference Board creates an index of leading indicators that includes consumer confidence surveys, expected major purchases by businesses, and a few others, and creates a forward-looking survey of economic activity in the near future. Once again, the index came in lower month-over-month, telling us economic activity should slow further in coming months:

This is the 18th consecutive month of declining leading indicators. The last time this happened was right before the Great Financial Crisis of 2007-2010:

You can see some of this “self-fulfilling prophesy” play out in the graph below. The red line indicates consumer confidence, and the blue line indicates the economic output (adjusted for inflation). Sentiment tends to lead GDP by a matter of a few months:

What this means for you

We hate to have to be the bearer of bad news but we are committed to being data-dependent and not allowing our emotions to govern our investing decisions for our clients. In every metric we can find, the economy looks headed into a recession. We have defensively positioned our clients for the eventuality.

Bottom Line:

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We’ve been alerting our clients for nearly two years now that inflation was going to cause significant problems and our central banks would have to take progressively stronger actions to combat it. No one knows exactly when a recession will be declared, but we believe most of the larger economies of the world are right at the door of one now. Recessions can take years to recover from, which is why we believe it is vitally important to get your family and business finances ready to weather through such a storm.

We predicted the beginning of a turn in the current market rally last week, and we reiterate that sentiment now. There will always be market movement that runs counter to the economic data because markets are much more short-term focused, and let’s face it: until fear takes hold, greed is the prevailing emotional state of most market participants. We do believe, however, that the recent rally has fully run its course, and the shift from stocks into safer investment options such as gold, cash, and government bonds will continue. With interest rates this high, getting a 5% or better yield, risk-free is becoming a more and more attractive option for investors concerned about the coming economic uncertainty. Once there is consensus that either the economy is earnestly deteriorating, or the Fed announces the end of rate hikes, the move from stocks to bonds will accelerate.

Whether you are our client or not, you need to consider the broader economy (and much less so the daily market fluctuations) when making investment decisions. The economy is telling us clearly what is coming, and you need to have your investment accounts prepared before that happens.

Just this past spring, I published an ebook to help you get your finances ready for the recession directly ahead. It’s yours totally free. Just click on the book image to access and download it.

Use these economic reports, and those of others working in this space, to prepare. You can not only avoid much of the pain that is coming, but you might actually profit from it, if your investments are properly positioned, and you’ve done what you can to shore up your business’ and family’s financial situation. If you need help with this, nVest Advisors has amazingly affordable personal financial planning and fiduciary investment management services to help you.

This is what we do for a living, and we’re very happy to partner with you on that endeavor.

Reach out to us for a totally free financial and portfolio checkup today if you’re concerned about where your finances sit for the coming few years, particularly if you are at or approaching retirement age. We’re delighted to offer you our thoughts. You can schedule that time with us below:

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Jeremy Torgerson, CEO, CIO & Senior Advisor

Our Economic nSight articles are typically written once weekly by nVest Advisors CEO Jeremy Torgerson for the general education of the public, and as a way to provide transparency for our clients and sponsored-plan participants as to how we create and modify our investment models. It is copyrighted and may not be republished in whole or in part without written permission.

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The views and opinions expressed in this economic outlook are for information purposes only and are not intended to be financial advice. nVest Advisors, LLC does not provide specific investment or financial planning advice to a client without an executed client service agreement. nVest Advisors, LLC does not trade directly in commodities or cryptocurrencies. Economic data changes rapidly; no warranty is expressed or implied about the reliability of this data once published. Although the information provided here is derived from authoritative sources, we cannot guarantee the accuracy of this information. This article may include forward-looking statements as defined in our general disclosures. Please see our general disclosure page for additional details.