The world’s best recession indicator is starting to look like the “boy who cried wolf”...
This signal first flashed in October 2022. The murmurs of a recession had begun months before that. But once this warning sign appeared, it became the consensus bet.
That recession hasn’t materialized, though. Unemployment remains low... And consumer spending is hitting all-time highs.
Even so, this recession indicator has flashed every day since last October.
That’s the longest stretch in this signal’s history. So why hasn’t a recession shown up?
This indicator may have a powerful track record – but as you’ll see, it’s not the only thing that matters. In fact, we have good reason to think it won’t be right this time around.
The undisputed king of recession indicators is the inverted yield curve.
The “yield curve” is just the difference between long- and short-term interest rates... in this case, the 10-year and three-month U.S. Treasury yields, respectively.
Normally, long-term rates should be higher than short-term rates. That’s because folks should be “charged more” to lock their money up for longer. Because they’ll be compensated for their risk, it encourages long-term lending – which is good for growth.
The economy gets weird sometimes, though. When short-term rates rise above long-term rates, folks aren’t getting paid to take risk in longer-term bonds. The yield curve turns negative – or, in other words, it inverts.
When that happens, folks have less reason to invest in the future. So the economy slows. And that’s why the yield curve tends to invert ahead of recessions.
Well, thanks to the Federal Reserve’s rapid rate hikes starting last year, the yield curve inverted in October 2022. And it has stayed that way.
An inverted yield curve is a bad sign. But it does happen from time to time. What makes today’s situation so crazy is the severity.
The inversion nearly reached negative 2% earlier this year. As you can see, that’s by far the most negative reading of the past four decades.
Today’s inversion has even eclipsed the 217-day streak we saw in 2006 and 2007, before the worst recession of our lifetimes. And today’s streak is still going strong – with no signs of ending soon.
This setup has confused a lot of folks. An inverted yield curve has been a useful recession signal for decades. It’s widely regarded as one of the most reliable signs of trouble... But after nearly a year, it’s starting to look like the boy who cried wolf.
To me, the lesson here is that you can’t rely on a single indicator... no matter how strong its track record is.
Even the inverted yield curve has false positives in its history. No one expects one this time because the inversion is so extreme. But it’s possible.
For now, unemployment is low, corporate earnings are growing once again, and consumer spending is growing. That means the economy still looks strong... despite the craziness with the yield curve.
I’d almost believe this if I weren’t having to go to Walmart every other day to maybe catch the discount on near-expiring meats, etc. The only brighter side if you can call it that is our governor suspended the state gas tax, but that can’t be permanent or very long per state law.
Households, nonprofit organizations, and nonfinancial, noncorporate businesses
Yeah, everything is rosy if you’re a lazy ass government employee and never built damn thing in your life.
Problem is, people are spending money they do not really have, by using their credit cards.
This data suggests that the numbers being sited in this article are less then accurate. If everyone has money to burn, why are they accumulating records level of personal debt?
Total Household Debt Reaches $17.06 Trillion in Q2 2023; Credit Card Debt Exceeds $1 Trillion
Yeah, it’s going to happen. People have been running up record credit card debt trying to keep up with rising expenses, and that cannot continue, so spending is going to fall. Companies are not about to give 50% raises to everyone to keep the economy going.
Credit card balances are rising sharply. They recently surpassed the $1 trillion level. Also, the Bank of America recently reported that more people are tapping their 401k’s under hardship withdrawals.
Rising costs are becoming a burden for the consumer as disposable income continues to shrink resulting from inflationary pressures. Its hard to find money for discretionary expenses and non-essentials when the cost food, energy, shelter, medical care, taxes, insurance, etc. keep going up.
Haven’t we already been in a recession for 1.5 years?
Written by a fool.
A fool: One who has all of the facts but knows not what to do with them.
Business economy is like sex. Going like mad and feels great....and then suddenly it stops.
I’m just going to post this article here since it is the only business/economy thread that I see handy.
“”Some Deposits May Be Temporarily Delayed”: Downdetector Shows Service Disruptions At US Banks “
""You can't have a recession if everyone has a job and everyone is spending money," I told the audience in Las Vegas."
As a side note to this thread, please consider the following.
Please correct me if I'm wrong, but corrupt Democratic and RINO, post 16th (direct taxes) and 17th Amendment ratification federal lawmakers can take credit for keeping the economy going by using all the unconstitutional taxes that they collect and bribes that they take to likewise bribe people to vote to keep them in office so that they can continue to try to destroy our constitutional republic.
Alleged: (list not intended to be complete)
Feds investigating if Menendez and wife got gifts including D.C. apartment, Mercedes and jewelry (5.25.23)
Regarding unconstitutional federal taxes, please consider the following excerpts from the writings and quotations of respected constitutional experts.
"Congress is not empowered to tax for those purposes which are within the exclusive province of the States." —Justice John Marshall, Gibbons v. Ogden, 1824.
“If the tax be not proposed for the common defence, or general welfare, but for other objects, wholly extraneous, (as for instance, for propagating Mahometanism among the Turks, or giving aids and subsidies to a foreign nation, to build palaces for its kings, or erect monuments to its heroes,) it would be wholly indefensible upon constitutional principles [emphases added].” — Justice Joseph Story, Commentaries on the Constitution 2 (1833).
From the congressional record:
”Simply this, that the care of the property, the liberty, and the life of the citizen, under the solemn sanction of an oath imposed by your Constitution, is in the States and not in the federal government [emphases added]. I have sought to effect no change in that respect in the Constitution of the country.” —John Bingham, Congressional. Globe. 1866, page 1292 (see top half of third column)
“Cherish, therefore, the spirit of our people, and keep alive their attention. If once they become inattentive to the public affairs, you and I, and Congress and Assemblies, judges and governors, shall all become wolves [emphasis added]. It seems to be the law of our general nature.” - Thomas Jefferson (Letter to Edward Carrington January 16, 1787)
Pelosi: "We have to pass the bill so that you can find out what is in it." (non-FR; 6 sec.)
Democrats [and RINOs] Are Terrified Of An Educated And Informed Public (3.12.23)
Patriots, the next major political event in U.S. is not Democratic and Republican Trump-supporting patriots reelecting hopeful Trump 47 for a second time, but when patriots support Trump with a new Congress by primaryiing ALL incumbent state and federal lawmakers and executives up for reelection, except for MTG, Gaetz & Company, Jordan (and others?), in 2024.
After all, lawmakers and executives continue to show that they do not have the patriotism and leadership skills necessary to find legislative support for effective remedies for unconstitutional government policies.
I think one thing that is keeping people afloat is the number of elderly parents that have passed away over the pass few years. Many died from Covid, others after getting the vaccine. The “boomer” parent’s homes (with no mortgage) are being sold for several times the amount paid for them 30 or 40 years ago.
These sales are giving their 30 to 60 year old children a lot of money to spend. Many of those that died were from the generation that believed in saving money, paying off their mortgage early, and not spending money they didn’t have. They also believed in having lots of life insurance so we have relatively young people getting 250 thousand to one million dollars dropped in their lap (depending on the number of heirs).
I wonder if there have been any studies done on the amount of life insurance pay-outs and probated estate sales done over the pass three years?
I see in this story and the comments that there is a great deal of overthinking on the subject.
Whereas all of the story and comments may be factual, the bottom line is that there are in financial matters unbreakable laws that are as certain as the law of gravity.
We have broken all of them.
Just as with the law of gravity, the consequences of those laws can be postponed by various means, but like the law of gravity there comes a tme when you lose and it wins.
The question really is....the end is near, but for how much longer can we postpone the end?
It depends on how they are spending it. If it is all debt, it will collapse
Well. Finally someone has joined me in the assessment that i have been ridiculed for... there is too much money in the economy that has been printed from thin air. The money supply grew too much too fast and the spending spree isn’t going away until that is remedied. At least the neer do wells are with second homes in the Hampton’s are doing their part and selling at a loss.
As long as we can keep spending money our great-grandchildren have not earned yet, we can keep postponing the recession until after the next election - every time.