Jeffrey Gundlach believes weakness is evident in US economic indicators, opposing Donald Trump’s claims about the US economy. The Morgan Stanley Business Conditions Index suffered its biggest one-month decline in history in June by falling 32 points, suggesting a sharp deterioration in sentiment. Other US economic reports have also been disappointing.
Disappointing economic reports
The US jobs report for May was worse than expected, with job additions growing by just 75,000 and missing economists’ expectation of 180,000. Wage growth also missed economists’ estimate, with average hourly earnings rising 3.1% YoY (year-over-year) in May.
US consumer price inflation also came in weaker than anticipated. It rose by just 0.1% month-over-month in May, compared with 0.3% in April. YoY, the CPI rose 1.8% in May and 1.9% in April.
Due to trade tensions ramping up and weak economic reports, the S&P 500 (SPY), Dow Jones Industrial Average (DIA), and NASDAQ Composite (QQQ) fell 1.6%, 1.3%, and 4.4% between May 5 and June 14. Meanwhile, safe-haven assets gained, with the SPDR Gold Shares ETF (GLD) rising ~5%.
Odds of a recession increase
Gundlach said during DoubleLine’s investor webcast on June 13 that “several indicators suggest a recession could take place in one year.” He specifically mentioned consumer indicators, which he said mark “the front edge of a recession.” He put the odds of the US sliding into recession at 40%–45% in the next six months and 65% within a year. In May, Gundlach had put the probability of a recession in the next year and next six months at 50% and 30%, respectively. US-China trade tensions have soured global sentiment, changing Gundlach’s stance on the odds of a recession.