myICLUB Blog


Where’s the Recession?


There's a big disconnect between economic data and investor perceptions.

A 1980s television commercial for fast food chain Wendy’s featured an octogenarian questioning the small burger patties and large buns used by Wendy’s competitors with her cantankerous query, “Where’s the beef?” The catchphrase entered the American lexicon and now is used whenever the substance of a product or idea comes into question.

In times like the present, the disconnect between reported economic data and the perceptions held by many investors and market pundits leaves me wondering, “Where’s the recession?”

This week, the Bureau of Economic Analysis revised its estimate for first quarter GDP growth upwards to a 1.3% annual rate from its previous estimate of 1.1%. Yes, this does mean that GDP growth has slowed from the preceding quarter’s 2.6% growth, but a large share of the blame for the slowdown must lie with the Fed’s campaign to tighten monetary policy and drag down inflation. And those efforts have been working. In April, inflation mediated to 4.9%, well off its 41-year high of 9.1% reached in June 2022.

As Nobel laureate Paul Krugman pointed out in an op-ed piece in The New York Times in early May the unemployment rate is now at its lowest level since the 1960s, and job satisfaction is at an all-time high.

All this good news won’t apparently dissuade even the most sophisticated business minds, however. A nearly unanimous majority of CEOs surveyed by The Conference Board expect the U.S. economy to tip over into recession sometime in the next eighteen months.

As Krugman points out, the economy is obviously performing better than people think and recession calls that have been bandied about “are clearly a false alarm.”

It is clear that negative thinking does have an impact on what happens in the real world—if enough consumers believe that a recession is coming, then their buying and saving behaviors will reflect that belief. They will not be buying recreational vehicles or new homes. CEOs who see a recession on the horizon will push out expansion plans and hunker down to conserve resources until the tough times blow over.

Despite this pessimism, economic indicators have stubbornly refused to turn negative. But if the zeitgeist remains so grim, it is only a matter of time before the sentiment drives the data.

For my part, I remain unconvinced that any meaningful or long-last recession is in the cards. And even if the U.S. does descend into a classic recession, investors who have the fortitude and patience to support their convictions can find plenty of small company prospects in this issue.

By and large, the companies reporting this month have shared good news and positive outlooks. Attractive P/E ratios abound. As always, some companies are on “probation” while we wait for clarity about their unique situations, but there are buys for subscribers who have available cash to deploy.

Our focus stock in this issue is a renewed look at a company that we have covered in the past. Evidence suggests that the stock’s share price is irrationally low in the face of stout fundamentals.

In this issue, we also discontinue coverage of one company that has seen dangerously-deteriorating profitability trends.

Stay the course!


Read Doug's complete commentary and profiles of our recommended small company stock in the May 2023 issue of the SmallCap Informer stock newsletter. Not a subscriber? Subscribe to the SmallCap Informer and get monthly small company stock recommendations and updated buy/sell prices for each of the 48 high-quality small company stocks currently covered in the newsletter.