What causes a recession? One darn thing after another. Any one of the following shocks may not be enough to cause a recession, but when combined there is enough disequilibrium to create business mistakes that lead to production slowdowns, inventory builds, slower hiring, and less consumer confidence.
- UAW strike - This strike can last given the wide disparity between parties. If it spills over to other suppliers, it will start to be an economic drag.
- A government shutdown - We have seen this before, but that does not mean there aren't risks. There was just an averted shutdown in June after which the Treasury issued well over one trillion dollars of new debt, so we are back in the same situation.
- The oil price shock - Production has been cut by Russia and Saudi Arabia and prices are unlikely to reverse in the near-term. With prices now solidly in the $90's, gasoline prices are higher, heating oil is higher, and there is new fuel for higher inflation.
- Student loan debt - The day is coming that payments will be due, and the cost will hit marginal households. Many households increased consumer debt during the student loan moratorium so new payments will reduce spending power for households that have a higher marginal propensity to consume.
Disruptions lead to new trends which offer opportunities, but the transitions are usually costly for investors.
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