Double Dip Risks Rising

QI Takeaway  — Key cyclical leading indicators have departed from their traditional roles. Stagflation risk is the prime suspect. But it’s not oil that’s driving inflation expectations. Broader price pressures are weighing on demand which continues to make the case for Staples and against Discretionary.


  1. QI’s Future Inventories proxy, a composite of regional Fed surveys, at 14.2 in September, was nearly 10-times last decade’s average of 1.4; however, their correlation with ISM Mfg New Orders appears to have broken, with readings diverging over the last seven months
  2. At 86.6 in September, Conference Board’s Consumer Expectations Index rivals the depths of the COVID recession, with a read of 0.0 as a z-score; after seeing a full recovery to 111.9 in March vs. February 2020’s 108.1 print, consumers are curtailing spending for large durables
  3. 12-month inflation expectations have printed north of 6% every month this year, with the latest readings north of 2 as z-scores; though these expectations have trended with oil prices in the past, WTI’s recent spike to $75 has not been the driver of consumer pessimism