I wanted to highlight how the peak (downward move) in the Producer Price Index (PPIACO) typically corresponds with the trough (upward move) in the Unemployment Rate (UNRATE) (inverse correlation), as a period of Recession takes hold on the economy, & the financial markets.
I also wanted to compare the above correlation with cycle tops in WTI Crude Oil (WTISPLC), & also with respect to the OECD Leading Indicators (USALOLITONOSTSAM) — as this helps to pinpoint some of the historic baseline(s) for predicting the peak &/or trough in the business vs. market (financial) cycles.
Here is the key for the attached chart(s):
Top Chart
Black Line (Unemployment Rate - UNRATE): *Black Vertical Dotted Line* = Recession Timing Trough
Blue Line (Producer Price Index - PPIACO): *Blue Vertical Dotted Line* = Recession Timing Peak
Green Horizontal Dotted Line = Expansion Baseline (100)
Orange Horizontal Dotted Line = Current Reading (98.62)
Red Horizontal Dotted Line = Danger Zone (<97)
Red Shaded Areas (Recession): Indicator via @chrism665
Looking at the larger picture of both charts, you can see that typically in previous periods of Recession you would see this flow of the signals (first to peak/trough, last to peak/trough):
Peak - OECD Leading Indicators (USALOLITONOSTSAM)
Trough - Unemployment Rate (UNRATE)
*Peak - Producer Price Index (PPIACO)*
*Peak - WTI Spot Crude (WTISPLC)*
*Note* - As you can see PPIACO & WTISPLC are very closely correlated as demand peaks out, you then see a shift downward in WTISPLC as this is a signal of the topping of economic growth.
Now let's dive close-up into each time period of recession, as we can see some linkages/similarities in the 1991, 2001, & 2009 recessions vs. the what is (likely) a 23' recession, depending how the economic, markets, & financial data plays out this upcoming year — potentially into 24'.
1991 Recession Timeline
Peak - OECD Leading Indicators (USALOLITONOSTSAM): July 1987
Trough - Unemployment Rate (UNRATE): Mar. 1989
Peak - Producer Price Index (PPIACO): Oct. 1990
Peak - WTI Spot Crude (WTISPLC): Nov. 1990
2001 Recession Timeline
Peak - OECD Leading Indicators (USALOLITONOSTSAM): Jan. 2000
Trough - Unemployment Rate (UNRATE): Apr. 2000
Peak - WTI Spot Crude (WTISPLC): Nov. 2000
Peak - Producer Price Index (PPIACO): Jan. 2001
2009 Recession Timeline
Trough - Unemployment Rate (UNRATE): May 2007
Peak - OECD Leading Indicators (USALOLITONOSTSAM): June 2007
Peak - WTI Spot Crude (WTISPLC): June 2008
Peak - Producer Price Index (PPIACO): July 2008
2023(24) Recession Estimated?
Peak - OECD Leading Indicators (USALOLITONOSTSAM): May 2021
Peak - Producer Price Index (PPIACO): June 2022
Peak - WTI Spot Crude (WTISPLC): June 2022
Trough - Unemployment Rate (UNRATE): Sept. 2022
What do you think about this macro analysis? Have we potentially been in a recession in 22' — or are we moving closer to higher unemployment (UNRATE) in 23' as the macro/market conditions worsen, & the Federal Reserve's tighter monetary conditions (liquidity & credit) take their toll on the economy? Let me know what you think in the comments below! 👇🏼
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