Sluggish growth continues to plague the U.S. economy. Retail sales and industrial production, both of which are strongly correlated with economic growth, came in unusually weak last month.
The year-over-year change in retail sales, shown below, rose just 0.5% in April. This is well below its long-term average of 4.76% and the lowest since May 2020. This is significant because retail sales represent most of the discretionary spending in this country, and if consumers aren’t spending, corporations—and their stock prices—can suffer.
The year-over-year change in industrial production, shown below, came in at just 0.24% last month, well below its long-term average of 2.5%. This is an important metric to keep an eye on because industrial production growth is an especially good leading indicator of economic growth, with negative year-over-year readings preceding 9 of the last 11 NBER-defined recessions.
The bottom line? While we can’t say for sure that these readings suggest an impending recession, we do know they are a sign of softening economic growth—and, thus, higher market risks. The current situation is further compounded by the presence of the inverted yield curve, a consequence of the Federal Reserve implementing restrictive measures on the economy. This introduces the potential risk of the Fed staying too tight for too long amidst a broader economic slowdown, which could worsen the situation.
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