Nine charts tell you: Are we in a new business cycle?

Author: Felix Jauvin, Blockworks; Translator: Deng Tong, Golden Finance

Since COVID shut down the global economy in 2020, it has become very difficult to tell which stage of the business cycle we are in.

The typical business cycle looks like this, and historically it has been easy to get a rough idea of ​​which stage we are in by contrasting it with interest rates and monetary policy:

However, everything has been a bit upside down in recent years, leaving many economists confused.

For example, in 2022 we saw negative real GDP (initially 2, but later revised down to 1):

Yet, during that same period, we experienced one of the hottest labor markets ever, according to JOLTS.

With such a strong labor market, it’s hard to believe there’s a recession:

Since 2022, we’ve seen the Fed go through a major rate hike cycle that, in the grand scheme of things, has not led to a recession. The stock market has hit new highs every day, the labor market has cooled but remains resilient, and GDP growth has been strong.

Yet, over the same period, if you focus on the manufacturing and goods sectors and leave the services sector aside, it almost looks like we just had a manufacturing recession.

The ISM Manufacturing PMI has been in contraction territory for a few years now:

During this period we have seen severe deflation, leading to outright deflation in the goods sector of the economy:

Fast forward to today, we have seen the Fed cut interest rates in response to concerns about the labor market and continue to try to give the economy a soft landing and thus enter a new business cycle without a recession.

The leading indicators we are seeing now suggest that the manufacturing sector may be moving out of the downturn and towards a new upward trend.

We are starting to see commodities break out after two years of consolidation, suggesting that economic growth is on the rise:

ISM New Orders appear to be breaking out, as does the Philly Fed Manufacturing Index:

This has been largely driven by optimism in the business sector since the election, according to survey data:

So where does this chart tour take us?

I think it's safe to say that we are not late in the cycle. We appear to be in the early stages of a new business cycle, and we have avoided a recession thanks to the massive fiscal stimulus and deficits of the past few years.