Yield Curve

The yield curve may be the most closely-watched market signal of a downturn. The Federal Reserve Bank of New York has a recession-probability tracker based on the average monthly spread between yields on three-month and 10-year treasuries. The latest reading showed a 23.6 percent chance of a recession for the 12 months through January 2020 — the highest since the reading for the year through July 2008.

Consumer and Business Sentiment

Bloomberg reported in February that the National Federation of Independent Business’ optimism index fell 3.2 points to 101.2, its lowest showing since November 2016. Billionaire investor Jeffrey Gundlach said last month the widening gap between consumer sentiment on the current situation and expectations is the “most recessionary signal at present.” The net share of companies expecting business conditions to improve in six months declined to 6 percent, the lowest since October 2016 and down from a post-election peak of 50 percent, according to Bloomberg.

Manufacturing Survey

Monthly surveys of manufacturers and other companies conducted by the Institute for Supply Management and five Federal Reserve banks tend to be volatile from month to month, though all the Fed factory gauges fell together in December 2018 for the first time since May 2016, and the ISM’s national index hit a two-year low (although it gained some ground in January of this year).

Global Growth

Goldman Sachs Group Inc. researchers say that for every 1 percentage point decline in growth outside the United States, American expansion is reduced by about half a point. The economists currently figure a 14 percent chance of a U.S. recession over the next year; with that number rising to 46 percent with a 3 percentage-point decline in global growth.

Hard Data

“Ultimately, any evidence of a recession will come in principal indicators of the U.S. economy, including employment, incomes and hours worked; business sales; and of course, gross domestic product,” Bloomberg states. “Those are some of the figures reviewed by the National Bureau of Economic Research, the arbiter of the start and end dates of U.S. recessions. So far, those numbers aren’t close to flashing red, but when they do, it will probably be too late for any recession predictions.”

Designed by Melissa Edwards • Source: Bloomberg