Oaul S: "The past 2 times recently that the M-PMI has been this low we were in a recession. Don't the present low numbers presage a recession on the horizon?"
Dr. Ed: Good question. You are right. However, in our "rolling recession" scenario consumers have pivoted from buying goods to buying services.
John H: "We've heard about US companies moving mfg capacity to other countries including the US. How much of this has actually happened?"
Dr. Ed: Onshoring is a very big deal. Lots of production is coming back to the US including new semiconductor plants, battery manufacturing, and LNG export facilities.
Asheesh M: "I’m curious, what can we expect if we get a longer than average inversion in the yield curve. Effects on the bonds market, regional banks that are already reeling, other risky assets?"
Dr. Ed: Inverted yield curves imply that investors expect that short term interest rates are getting high enough to cause a financial crisis, credit crunch, and a recession. In this scenario, short-term interest rates are expected to fall once things start to fall apart. This time short rates might stay restrictive for longer until inflation moderates further. This could start a wave of mergers among regional banks. Bond yield might stay around 3.50% +/- 50bps.