Let me start by saying advertising has already faced a slowdown in 2022 and I expect this trend to continue this year. Companies will cut back on advertising/marketing. The next stage would be to trim their excess inventory by lowering their margins. When costs begin to erode the profit margins of these corporations, the final step would be layoffs.
I will attempt to time the start of the recession based on historical analysis.
There are 2 excellent indicators for timing the start of the recession. The first is the trough unemployment to recession indicator. This is the time it takes for a recession to occur after the unemployments troughs. The second is the inversion of the 10 year treasury minus 3 month yield. In other words, investors want to be compensated more for short term duration bonds than long term rates. Out of the 2 indicators, the former has the shortest lead time of about 6 months which is an average of the past 12 recessions. The 10 year treasury minus 3 month has a recession lead time of about 10 months which is an average of recessions from 1969 to the GFC. We have an inversion that occurred in Oct 2022 which places the start of the recession at about August 2023. The unemployment troughed in the US at 3.4% in January which places the start of the recession in July 2023. However, we are assuming January will represent the trough month which is uncertain at this time.
In addition to above I need to address the housing market. During the Great financial crisis, the housing peaked in June/July of 2006 and construction worker layoffs began about 1 year later. In the current environment, home prices peaked in June of 2022. Housing starts are on a rapid decline and I expect a similar slowdown to begin in the second half of the year.
Putting all of this together, I would forecast a recession to begin in the third quarter of 2023. The bottom in the market never occurs before the recession begins and I believe it will be a second half story.