Jeffrey Gundlach alludes to a recession if the Fed Chair Powell continues tightening in a rapidly decelerating economy as the macro data trends steeply downwards. 

“We are already in a softish landing, to put it kindly,” said Jeff Gundlach.

Indeed a raft of economic data suggests that the US, the world’s largest economy, could already be knee-deep in a recession.

For example, June initial jobless claims posted a229K, above the forecast 227K, and the figure has been revised up to 131K.

In other words, the jobless rate is starting to trend upwards, and is forecasted to worsen going forward.

Rising initial jobless is no surprise to anyone up to speed with the recent high-profile layoffs from Coinbase to Tesla.

We could be about to delve into a shocking trend of massive layoffs if central banks continue tightening in a worsening economy.

“We are already in a softish landing, to put it kindly”

JEFF GUNDLACH

Jeffrey Gundlach alludes to a recession if central banks continue their aggressive tightening policy

“Everyone is talking about how strong the economy is, but GDP was negative in the first quarter, and GDP in the second quarter is now at zero, and it has been trending in a southerly direction for the last few months. So, where is the strong economy,” said Jeffrey Gundlach.

Indeed, business sentiment has fallen into neutral territory. S&P Global Composite PMI Flash (JUN, which tracks business trends across both manufacturing and service sectors (60 percent from the manufacturing sector, and 40 percent from the services sector), fell to 51.2, a reading below 50 confirms contraction in manufacturing and retail.

Moreover, with job insecurity now on the horizon, retailers will have a tough time unloading their already bloated inventories. 

The coming summer sales are likely to be like no other as those fortunate enough to have spare cash take advantage of the plentiful bargains.

Expect bargains galore as desperate retailers try to persuade a dwindling supply of shoppers to buy. 

“Everyone is talking about how strong the economy is, but GDP was negative in the first quarter, and GDP in the second quarter is now at zero, and it has been trending in a southerly direction for the last few months. So, where is the strong economy”

JEFFREY GUNDLACH

So, why the retail slowdown?

“Housing has become extremely less affordable,” said Jeff Gundlach. When the cost of housing goes up, household disposable income falls. In other words, households’ budgets are tight, and retailers are already feeling the pain as unsold goods keep piling up. 

Major U.S. retailers, including Walmart (WMT.N) and Target (TGT.N), said last month that they were carrying too much merchandise. 

Wholesale inventories increased 24.0% in April on a year-on-year basis. Inventories are a key part of gross domestic product. Wholesale motor vehicle inventories rose 1.3% after accelerating 2.4% in March. 

We all know that a lot of consumption was pulled forward, durables exploded to the upside two years ago and stayed up very elevated until recently
Jeffrey Gundlach

So aggregate demand is in free fall as retailers battle with inventory bloat which Jeffrey Gundlach alludes to a recession if the Fed doesn’t soon pivot from tightening to at least neutral or easing. 

“The average monthly payment, the monthly payment on a median home with a 30-year commitment rate is up by 45% year to date. 

So the past several months are going to cut into things,” said Jeffrey Gundlach.

Spiralling food and energy costs have contributed to the cost of living crisis, and now it is housing as Fed rate hikes get passed on as higher mortgage costs and rents. 

So household budgets are under severe pressure. 

But retailers should not hold their breath for relief anytime soon. The University of Michigan consumer sentiment index data, which has been tracking data since 1952, has collapsed to a record low of 50 points in June 2022. 

Jeffrey Gundlach alludes to a recession view based on durable consumption, being brought forward during the pandemic

“We all know that a lot of consumption was pulled forward, durables exploded to the upside two years ago and stayed up very elevated until recently,” he said. “It was way above trend during the lockdown,” he added. 

“So you can’t expect any growth at all. You should expect a negative trajectory on the nominal value of durable spending. Non-durable is also above trend,” said Jeffrey Gundlach

But Jeffrey Gundlach believes that services are where inflation will probably get worse in the months ahead.

He sees a lot of pent-up demand for travel leisure and hospitality, Nevertheless, Jeffrey Gundlach notes that travel leisure and hospitality is far from being in a boom. 

“All three are either at or above trend if we go back to 2016,” he said.

“I don’t think the non-recession case has much probability” – Jeffrey Gundlach

Jeffrey Gundlach alludes to recession views based on no sector being in growth as more proposed rate hike headwinds will further weaken the economy

“So where is the growth going to come from, is that housing, is it going to come from global trade, it doesn’t feel like it. So I have a hard time finding where economic growth is going to come from,” he said.

Jeffrey Gundlach believes that the economy has already lost significant altitude with him being diplomatic by calling it a softish landing. 

“I don’t think the non-recession case has much probability,” he said.

Jeffrey Gundlach’s indicator for determining where Fed fund rates are heading is to follow the US2Y 

“The Fed just follows the bond market Jeffrey Gundlach,” he said, and added that he joked about this in his podcast. “All we need is the two-year treasury. We don’t need the Fed,” said Jeff Gundlach. 

Yields have been coming down since June 14, which could indicate Fed tightening is at its end of the cycle. 

Jeffrey Gundlach alludes to a recession, but that could be too kind

The bubble of everything was created by central banks cutting easing too late, and the crash of everything could be on the cards if central banks retard the pivot from tightening to easing.

Central banks own the bubble, and this crash. Investors also are already in pain.

See Jeffrey Gundlach alludes to a recession interview here.