BCA Research Warns of Imminent Recession

The ongoing deterioration in the U.S. labor market is a signal that a recession is imminent, according to BCA Research’s latest strategy report. This view places the firm in the minority, as the prevailing investor consensus anticipates a soft landing.

Labor Market Trends

BCA Research notes that the labor market has significantly frayed over the past few months, prompting the firm to adopt a defensive stance four weeks ago. They highlighted that there has never been a case in the post-war era where the three-month moving average of the unemployment rate has risen by more than one-third of a percentage point without a recession.

Several concerning trends in the labor market were highlighted:
– A decline in small business hiring intentions
– Weak temporary employment
– A rise in initial unemployment claims

These signs, along with persistent softening key metrics from the JOLTS survey, led BCA to become defensive on equities.

“We turned tactically defensive four weeks ago, as the labor market frayed enough to portend a recession. Investors should be using the post-August-5th bounce to reduce risk asset exposures,” BCA stated.

Consumer Behavior and Economic Outlook

BCA pointed out that consumer behavior is unlikely to sustain the economy as it did during the pandemic. While households still possess some capacity to spend due to savings built up during that time, BCA emphasizes that both their resources and spirit are not inexhaustible.

Additionally, with banks tightening lending standards for eight consecutive quarters and consumer delinquencies on the rise, the outlook for future income is bleak.