All articles tagged with #recession indicator
Moody's Analytics warns that the US economy is nearing a recession threshold, with the unemployment rate rising to 4.6% and the Sahm Rule close to triggering a recession signal, amid weak job growth, declining demand, and potential impacts from AI and policy factors.
The recent decline in the 10-year Treasury yield from nearly 5% to around 4.05% suggests concerns about weaker economic growth and may serve as a recession indicator, influenced by expectations of Federal Reserve rate cuts and slowing job growth, reflecting a shift from earlier optimism for higher growth and inflation in 2025.
The ISM Manufacturing New Orders Index, which has accurately predicted U.S. recessions for 72 years, recently reported a reading below 50 for the 16th consecutive month, signaling industrial-order contraction and potentially forecasting a recession in 2024. While this indicator doesn't guarantee market movements, historical data suggests that a downturn in the U.S. economy could lead to stock declines. However, long-term investors are reminded that economic downturns and stock market corrections have historically been short-lived, with most periods of economic expansion lasting for multiple years, and every downturn eventually being a buying opportunity for patient investors.
The closely watched 2-year/10-year Treasury yield spread, a key recession indicator, has become less negative due to disinflation rather than economic growth prospects, according to strategist Lawrence Gillum. The un-inverting curve and rate-cut expectations are driven by the narrative of inflation returning to 2% faster than expected, rather than recession fears. Despite geopolitical events affecting oil prices, the bond market is not currently signaling an impending U.S. recession, as indicated by fed funds trading.
The Sahm rule, an indicator designed to predict recessions, is now further from triggering after the US unemployment rate dropped to 3.7% in November. The rule compares the three-month average of the unemployment rate with the lowest average from the past year, and if the difference is 0.5 percentage point or greater, it triggers a recession warning. While the rule has historically been accurate, its creator, Claudia Sahm, believes it may not trigger this cycle due to workers returning to the workforce and a rebalancing of supply and demand dynamics in the labor market.