A "contagion" of economic indicators have come together to signal the economy is tipping into a contraction, according to Lakshman Achuthan, co-founder of ECRI, a research firm that predicts changes in the economic cycle.
"You have wildfire among the leading indicators across the board," Achuthan said in a radio interview on Sept. 30 on "Bloomberg Surveillance" with Tom Keene and Ken Prewitt. "It's a vicious cycle that is going to get quite a bit worse."
While the Labor Department said Oct. 7 that employers in the U.S. added 103,000 workers to payrolls in September, sustained jobs growth of about 150,000 a month is needed to reduce unemployment by about half a percentage point over a year, according to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
The world economy risks lapsing into a recession with the pace of growth falling below the "new normal" level Pacific Investment Management Co. has predicted since 2009, Gross wrote in a monthly commentary posted on the Newport Beach, California, firm's website Oct 3. Pimco's "new normal" scenario says that following the market's collapse in 2008 the U.S. economy would grow at a below-average pace for several years.
"Markets these days give mild signs of a collapse," Gross said in an Oct. 4 Bloomberg Television interview with Lisa Murphy. The odds of recession in developed economies is about 50 percent, with the U.S. on the "brink," he said. "This is one of those times where you are worried about the return of your money."
After eliminating Treasuries from his $245 billion Total Return Fund in February because they were too expensive, Gross increased holdings of U.S. government securities to 16 percent of assets as the debt had the highest quarterly returns in almost three years.
Treasuries returned 6.4 percent in the third quarter, the most since the depths of the financial crisis in 2008, according to Bank of America Merrill Lynch indexes. Stocks tumbled, with the Standard & Poor's 500 Index falling 14 percent, the biggest quarterly drop since the last three months of 2008.
Equity traders are boosting bearish trades around the world by the most in at least three years. Borrowed shares, an indication of short selling, have risen to 11.3 percent of stock available for lending from 9.5 percent in January, according to data compiled for Bloomberg by the London-based research firm Data Explorers.
"Half the people you speak to tell you they already think we are in a recession," said Jeffrey Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital LP, which manages $17 billion, during a panel discussion the firm held for clients on Sept. 29 in New York. "There remains no real fundamental reason in the U.S. for interest rates to go higher."