Tonight: Vibe shift or looming recession? Plus: We'll see what happens when you lock down a city roughly the size of Texas. Let's get into it. By Allison Morrow |
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All around, it feels like a Big Change is coming. Maybe it is the so-called vibe shift, that squishy concept of the moment when cultural norms make a hard pivot away from current trends. Or maybe it's just a good old fashioned recession? Economic trend forecasting is decidedly not as sexy as figuring out when and whether "normcore" will enjoy a renaissance (a gal can dream) or whether low-rise jeans will somehow rise from the grave (please, God, no). But analysts are paid the big bucks to sniff out clues about when a downturn may be lurking. And just as a stampede of animals fleeing to higher ground can signal a tsunami, the way regular people spend their money can tell us where the economy is heading, my colleague Nicole Goodkind writes. Here are a few key indicators we're tracking. 🩳 THE UNDERWEAR THEORY - Ask former Fed chief Alan Greenspan whether a recession is coming and he might tell you the answer lies in men's underwear.
- The Greenspan garment theory goes like this: Men don't really care about underwear, so sales are usually stable. On the few occasions when sales fall, it means household budgets are tighter than a fresh six-pack of tighty whities.
- History backs it up: Men's underwear sales fell from 2007 to 2009, during the Great Recession, but picked up in 2010 as the economy recovered.
🚀 TO THE MOON - Andrew Lawrence, a former real estate analyst with Barclays Capital, created the "Skyscraper Index" in 1999. The theory goes that when a building breaks the record for world's tallest is completed, a recession or economic crisis is imminent.
- For example: The Empire State Building was finished in 1930, just in time for the Great Depression. The Sears Tower (now Willis Tower) and the World Trade Center's Twin Towers opened in the early 1970s as the US fell into stagflation.
- Those lofty ambitions are linked to cheap credit, over-investment, and rampant speculation — typically signs of an economic top. Right now, a lot of building projects are frozen but the world's uber-billionaires are literally rocketing themselves into space… make of that what you will.
💄 POP OF COLOR - Lipstick: It's cheap and it makes us feel good, so sales tend to go up when the economy is going down, or so the theory goes. In fall 2001, after 9/11, US lipstick sales increased 11%. During the Great Depression, cosmetics sales overall increased by 25%.
- It's not a perfect indicator – lipstick sales also tend to rise in good times. And in the era of Covid-19, as masks made lipstick not only unnecessary but rather messy, skincare products like moisturizer became a better metric for America's financial mood.
💖 MISERY LOVES COMPANY - Dating sites get a boost when the economy is in trouble.
- Match, which owns OKCupid, Hinge and Tinder, reported its strongest fourth quarter earnings in seven years during 2009's Great Recession. In the first year of the pandemic, shares surged 141%.
- If you trust this indicator, prepare for bad news: Bumble reported stronger-than-expected fourth-quarter earnings this month and received an analyst upgrade, leading shares to surge by 22%.
⚠️ INVERTED YIELD CURVE - All right, I lied, this one isn't fun at all but it's probably the most important indicator flashing a big bright warning sign.
- Bond market investors are wagering that the Fed will need to get more aggressive with policy to rein in inflation. To that end, they're pouring into US Treasury notes, a typically safe investment when stocks are turbulent.
- On Monday, yields on five-year US Treasury notes, which move opposite prices, rose above those of 30-year bonds – an unusual event known as a yield curve inversion.
- Without getting too technical, all that means that investors are more nervous about the immediate future than they are the longer term. My colleague Lucy Bayly has more.
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President Biden announced a $5.8 trillion budget proposal that includes a significant increase in military spending. Biden said that the proposal was composed of three main tenants: fiscal responsibility, safety and security, and investments to "build a better America." |
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| In case anyone forgot, amid the war in Eastern Europe, rampant inflation and Will Smith slapping Chris Rock at the Oscars, we are still in a pandemic. The latest: Roughly half of Shanghai, a city of 25 million people, went into lockdown Monday as Chinese authorities try to stamp out a wave of Covid infections. On Friday, the lockdown is set to shift to the other half of the city. Shanghai went from just a handful of cases to 3,500 cases, becoming the epicenter of China's worst outbreak in two years. Videos posted to social media showed panicked shoppers scrambling for supplies after authorities announced the staggered lockdown Sunday night. The news sent investors into a tailspin. US crude tumbled 7% as traders bet that the restrictions would reduce demand from China, the largest oil importer on the planet, my colleague Matt Egan reports. Why it's a big deal If you glossed over that population tidbit above, take a moment to let it sink in: Shanghai is home to 25 million people. That's three times the size of New York City. It's just a few million shy of the entire state of Texas, and a few million more than the state of Florida. Taking even half of that economy, which accounts for 4% of China's output, offline is going to have huge ripple effects. Beyond the immediate economic fallout, there's the giant question mark hanging over China more generally. Beijing is an outlier when it comes to dealing with the pandemic. While many governments in the West have shifted to a sort of "living with Covid" strategy, Chinese officials have maintained a strict zero-Covid policy, even as it undermines China's economic growth. Meanwhile, investors outside China are watching closely to see whether manufacturing and shipping will be affected by the Shanghai lockdown. On Monday, state media said the city's main ports were operating normally. "To have this market firing on all cylinders, you need China. China is the biggest cylinder," said Michael Tran, managing director of global energy strategy at RBC Capital Markets. |
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⛵ US lawmakers are investigating Credit Suisse after the bank asked investors to "destroy documents" allegedly linked to to Russian oligarch and tycoon yacht loans. 🍺 Heineken and Carlsberg will exit the Russian market following reviews of their operations triggered by the invasion of Ukraine. 🚭 Walmart, the world's largest retailer, will stop selling cigarettes in select US stores following years of pressure on big chains to end tobacco sales. 📈 Tesla is planning its second stock split in two years, sending shares up 8% Monday. | |
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