Interest Rates, Labor Constraints Threaten to Derail Near-Historic Expansion, Economist Says

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LAS VEGAS — Shifting monetary policy, a tight labor market, and a host of other challenges threaten to disrupt the second-longest business expansion in U.S. history, said Robert Dye, senior vice president, and chief economist at Comerica Bank, in a session yesterday at the 18th Annual Auto Finance Summit.

The current business cycle has been in place for 112 months — since July 2009 — second only to the 120-month expansion period from 1991 to 2001.

One of the major question marks is auto sales, which have likely peaked, Dye said. “I get a little concerned when auto sales get below 16.5 million units on the back side of a cycle because that tends to be the vulnerable zone where they can slide really quickly,” he said. “We’re not there yet, but as we get closer to that 16 [million]-to-16.5 [million] level, I get concerned.”

Meanwhile, lenders should keep their eye on the stock market. “The stock market is a great barometer of business sentiment,” Dye said. “But a stock market correction is potentially one of those tripwires going into the next recession.”

Another key factor: the intersection between the corporate debt markets and corporate profits. “Traditionally, late in the cycle is when corporate profits get squeezed and corporate debt markets start to lose some quality,” he said. “We could be on the verge of seeing both of those. If I see both those things deteriorating — in terms of profit spreads narrowing and [the quality of the] debt market deteriorating at the same time — I start to get worried.”

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