Dallas Fed Survey Flashes the Recession Signal Nobody Seems to See

Global markets juggle rising debt, soft data, and Tech hype, while savvy investors find gains in metals and targeted Emerging Market plays.

Key Takeaways

• Income Down, Stocks Up: Since April, real disposable personal income has fallen at a -1.2% rate (annualized) while corporate profits have been booming. The resulting move in the stock market has led to a huge “wealth effect” on spending via an epic drawdown in the savings rate, because it is not every day that contracting real incomes miraculously coincide with the +2.6% pace of consumer spending volumes. But who needs the labor market when we have the stock market?

• Consumer Sentiment Paradox: The UMich headline reading is in the bottom 1% share of all time, at a mere 53.6. That is -37% below the long-run mean of 85. That number is worse than the most depressed readings in ten of the past eleven recessions! But here is the rub: the equity sentiment index, at 56.1, is above the historical average and never before has this series been so high with the overall consumer confidence metric so low — the typical equity market sentiment component, when the headline index was as low as it is today, was 43! It is now +30% above that normal level.