Indicators from the economic calendar, such as GDP, PMI, unemployment, retail sales, and industrial production, usually measure the health of an economy. However, non-traditional indicators can also provide valuable information.
For example, a rise in restaurant bookings, increased travel and tourism, rising energy consumption, freight transport activity, and high demand for luxury goods may indicate that the economy is doing well.
A decline would suggest a deterioration, as people cut back on non-essential spending under challenging times. While these factors alone cannot predict a recession, they provide helpful information about the economic climate.
What's the current situation?
Given that Moët Hennessy Louis Vuitton has posted lower-than-expected sales for the second quarter in a row mainly due to weaker Chinese demand, things aren’t looking too rosy.
Second-quarter revenue was €21 billion, below analysts' forecast of €21.5 billion, while the company's first-half revenue fell 1% to €41.7 billion.
Investors did not seem to buy the group's Chairman and CEO's claim that these results underline LVMH's resilience in a difficult economic and geopolitical climate.
How about air travel?
European low-cost airline Ryanair saw its fares fall 15% to 41.93 euros in the three months to June on a year-on-year basis due to customer backlash when it tried to raise them.
Of more significant concern now is that Ryanair expects airfares during the peak summer season to be ‘significantly lower’ than last year, as the low-cost airline recorded a sharp fall in profits.
So, while demand remains strong, pricing power remains weaker, suggesting that consumers are more financially constrained and less willing to absorb higher costs.
What about macroeconomic indicators?
The latest data show that US economic activity grew at a slow to modest pace between late May and early July, and businesses are bracing for slower growth ahead. The outlook is rather gloomy.
The good news is that this could help mitigate some of the additional inflation. However, it also means that the labor market could weaken, taking us further from a no-landing scenario.
As to why investors are completely ignoring this, they probably believe that if things get out of hand, the Fed can always intervene by lowering interest rates earlier and more significantly than expected.
The bottom line is that both traditional and alternative indicators show the global economy might face more uncertainty and a possible slowdown. It would be wise to add some defensive investments to your portfolio.