H.O.P.E Cycle
Created by Michael Kantrowitz, Chief Investment Strategist at Piper Sandler. The H.O.P.E framework tracks the sequence of economic weakening that typically precedes a recession: Housing, Orders, Profits, Employment.
Mixed. Housing stabilising, orders still contracting, profits at record highs, employment easing off the recent peak.
Housing
First to weaken
Housing permits at 1,386K, rebounding modestly from the August 2025 low of 1,330K.
Orders
Second to weaken
ISM New Orders at 47.7, below 50 contraction threshold.
Profits
Third to weaken
Corporate profits at a new record of $4,538.6B in Q4 2025.
Employment
Last to weaken
Unemployment at 4.3%, off the November 2025 high of 4.5%. Initial claims at 207K.
The Economic Sequence
Housing
Higher interest rates increase mortgage costs, reducing demand for new homes. The NAHB index, housing starts, and building permits show marked declines. Housing is always the first sector to weaken because it is the most interest rate sensitive part of the economy.
Orders
Firms anticipate lower consumer spending and reduce new orders to avoid inventory buildup. The ISM Manufacturing New Orders index reflects this contraction. Orders decline as businesses see the housing slowdown spreading.
Profits
Initially sustained through cost cutting, corporate earnings deteriorate as consumer spending slows and financing costs rise. Companies may halt expansion plans and reduce payroll. Profit margins compress before revenue declines.
Employment
Unemployment increases only after significant slowdowns in prior sectors. Worker layoffs follow aggressive corporate downsizing, reflecting broader economic distress. Employment is always the last to turn because firing people is the cost cutting of last resort.
About Michael Kantrowitz
Michael Kantrowitz serves as Chief Investment Strategist and Head of Portfolio Strategy at Piper Sandler. His expertise centres on economic cycles and their investment implications. The H.O.P.E framework has become one of the most widely referenced recession sequence models in the investment community.