US economic indicators point towards contraction as unemployment stays at historic lows

US economic indicators are flashing warning signs of a contraction, despite historically low unemployment rates. This suggests that the US economy may be in trouble, with potential job losses and economic struggles ahead. Businesses and individuals should be cautious and plan ahead for potential economic turbulence in the coming months.

The current state of the U.S. economy is showing signs of contraction, but experts predict that a recession is not imminent. While drawing comparisons to past eras and recessions may seem natural, the circumstances surrounding the current economic climate are significantly different. That being said, the Federal Reserve is likely to continue hiking rates until there is a material break.

It is important to note that the banking crisis we are experiencing today is fundamentally different from the one in 2008. Whereas 2008 saw a knock-on effect with house prices dropping drastically due to mortgage defaults, SVB is experiencing depositors panicking about severe unrealized losses on their treasury portfolio.

This week, the OPEC + announcement to cut over 1 million barrels/day starting next month, with 2 million barrels/day being cut from October, is expected to send a pure signal of demand collapsing. Furthermore, it leaves the Biden administration in trouble after drawing down on the Strategic Petroleum Reserve while failing to build on the reserves when prices were surpassed. Crude Oil WTI (NYM $/bbl) closed the week at $80/barrel, with some analysts expecting triple digits.

The March ISM manufacturing survey shows a continued decline, with manufacturing staying within the contraction zone of 46.3, undershooting expectations, while JOLTS data has printed 9.93 million vs. the 10.5 million expected, being the smallest print since April 2021. Every part of the ISM Services PMI continued to drop, with new orders down to 52.2 from 62.6.

Despite this, unemployment has dropped to 3.5% from 3.6%, and the U.S. Bureau of Labor Statistics employment report shows 236,000 nonfarm jobs added for March, with economists expecting 239,000 jobs.

As a result, there is now a 69% chance of another .25 rate hike at the May FOMC, which would put the federal funds rate over 5%. The Fed balance sheet fell by $74 billion this week, roughly reduced by $100 billion in the past two weeks. The fed balance sheet is now shrinking faster than before the SVB collapse.

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