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Are We in a "Rawhide" Economy?

Are We in a "Rawhide" Economy?

August 28, 2023

According to Wikipedia, Rawhide was an American Western TV series starring Eric Fleming and Clint Eastwood. The show aired for eight seasons on the CBS network. Spanning 7+1⁄2 years, Rawhide is the sixth-longest-running American television Western. Set in the 1860s, Rawhide portrays the challenges faced by the drovers of a cattle drive.

Source: Best Buy

The show is fondly remembered by many for its opening theme, "Rawhide", which featured the widely known lyrics:

Rollin', rollin', rollin'
Rollin', rollin', rollin'

Move 'em on, head 'em up

Head 'em up, move 'em on

Move 'em on, head 'em up


Source: Rawhide Theme Lyrics´╗┐

For those of you who would like a reminder or just a nostalgic moment, a YouTube video of the TV show’s theme song is included below.

Rawhide Theme Song

After almost a year of predicting a recession is just around the corner, many economists are now suggesting that the economy may be experiencing its own Rawhide moment, as they submit that we are in a rolling recession (Rollin', rollin', rollin'). A rolling recession is generally defined as various sectors of the economy going through downturns and then rebounding at different times in an unsynchronized manner.

This is very different from what we have experienced over the past two decades. The economic shocks we experienced during the bubble, the subprime mortgage crisis, which led to the failure of AIG/Lehman Brothers, and the COVID-19 coronavirus lockdowns created substantial damage across our economy, leading to significant and simultaneous recessions.

As you can see in the chart below from our friends at Capital Group/American Funds, several sectors of the economy went through downturns related to the initial COVID-19 coronavirus pandemic. This would include the travel, manufacturing, and oil sectors of the economy. This makes sense since nobody was traveling or driving in the early days of the pandemic, other than essential workers.

Different sectors have experienced downturns at different times.

Sources: Travel: Capital Group, Transportation Security Agency (TSA), U.S. Department of Homeland Security. Data is a 30-day moving average. As of July 26, 2023. Semiconductors: Capital Group, Philadelphia Stock Exchange, Refinitiv Datastream. As of June 30, 2023. Housing: Capital Group, Refinitiv Datastream, Standard & Poor's. Latest available monthly data is May 2023, as of July 27, 2023. Manufacturing: Capital Group, Institute for Supply Management (ISM), National Bureau of Economic Research. Refinitiv Datastream. As of June 30, 2023. Chemicals: Capital Group, U.S. Federal Reserve, Refinitiv Datastream. Data indexed to 100 in 2017. Figures are seasonally adjusted. As of June 30, 2023. Oil: Capital Group, Refinitiv. As of July 26,2023. Past results are not predictive of results in future periods.

However, as people received stimulus checks and enhanced unemployment benefits, there was significant demand for manufactured goods, and these sectors rebounded dramatically. People spent large amounts of their newfound cash on stuff because they could not leave their homes to travel or go to sporting events or concerts. Subsequently, the travel and leisure industries reopened, and people started spending their money exploring the world, as well as seeing their friends and family. This caused a second downturn in manufacturing as people switched their spending habits once again.

The Fed then began to raise interest rates dramatically in 2022 to combat the inflation that was the result of massive government spending and growth in the money supply from the Federal Reserve Bank. This put stress on the housing market and tech companies, as you can see above. Because people who have mortgages under 4% are not in any particular rush to sell their homes and buy another with a mortgage rate north of 7%, we have seen demand for housing reaccelerate as there is simply not enough supply on the market. It has surprised many to see housing prices stay elevated in the face of mortgage rates most people have not seen in nearly twenty years.

This narrative of a rolling recession, accompanied by a soft landing, has become very popular. While it would be great to think that the Fed could thread the needle and produce this kind of outcome, even though they have raised interest rates at a faster pace than at any point in the last forty years, there are a few things I would like to remind you. The chart below from our friends at the MFS funds shows us that challenges remain for the US economy and the financial markets.


Many of the more conservative economists and market strategists we follow are still expecting a mild recession in late ‘23 or the first half of ’24. This would be accompanied by the Fed doing an about face and cutting interest rates, which could be very constructive for the bond portion of our clients’ portfolios. And a recession at that time could also have a meaningful impact on the narratives around the 2024 Presidential and Congressional elections.

As we close today's discussion, I would like to leave you with a more light-hearted take on the “Rawhide Economy” outlook. It comes from Billy Crystal and his friends driving cattle, in a very un-Clint Eastwood-like way, in the movie City Slickers.’’


City Slickers "Rawhide"

By the time we know the answers to all of these questions, we all may feel like Billy Crystal. Whether we keep Rollin', rollin', rollin' or not, the CFPs of Impel Wealth Management will continue to monitor the economic and investment landscape for the benefit of you, our trusted friends and clients. Should you have any questions about your family’s unique situation, please do not hesitate to give us a call. We are here for you.

© 2023 Jesse Hurst

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

Investors cannot directly invest in indices.