
The U.S. Is Getting Closer to a Recession, Data Show - paulpauper
https://www.barrons.com/articles/the-u-s-is-in-the-late-stages-of-expansion-data-show-51549642305?mod=bol-social-fb
======
Symmetry
If there were a way to predict future recessions, and it was reliable, and it
was well known to the point of being published on a public web page, then it
wouldn't work. As soon as it predicted a future recession everyone would sell
their long positions and the recession would happen almost instantly.

There have been ways of predicting market movements in the past that, kept
secret by their discoverers, were later turned into trading empires before
they stopped working. But there are no ways of predicting future market
movements that both (A) work and (B) are on the front page of Hacker News.

~~~
fbonetti
1\. There already is an incredibly accurate predictor of recessions: the 10
year vs 2 year yield ratio.

2\. The NBER defines a recession as “a significant decline in economic
activity spread across the economy, lasting more than a few months, normally
visible in real GDP, real income, employment, industrial production, and
wholesale-retail sales.” It has nothing to do with the stock market.

~~~
nickles
> There already is an incredibly accurate predictor of recessions: the 10 year
> vs 2 year yield ratio.

This is not quite true. 2s10s curve inversion is commonly discussed, but 3m
UST bill vs 10y UST note has far greater predictive power [0] -- and this
indicator does not exist for all large economies. BoJ and ECB factor in curve
inversions already, which diminishes their predictive power.

Additionally, some have argued that the US tax policy changes have diminished
the signal from the curve (companies repatriating cash tend to hold it in
short dated tenors, making the curve steeper than it would otherwise be).
Finally, there's argument over whether yield curve inversions are causative or
indicative of recession in the US.

[0] [https://www.frbsf.org/economic-
research/publications/economi...](https://www.frbsf.org/economic-
research/publications/economic-letter/2018/august/information-in-yield-curve-
about-future-recessions/)

------
40acres
Part of me wonders if we are talking ourselves into a recession, the market is
definitely spooked about how China's growth slowdown affects the global
economy but in terms of wages and unemployment the US economy still has a long
ways to go. For instance African American unemployment is at record lows but
still around 6%. Many people are working gig economy jobs and part time and
would love a full time opportunity. Growth (discounting tax cuts) is low but
stable, so is wages.. so is inflation.

If anything is going to trigger a recession I would put my money on corporate
debt, so many companies are loaded with debt that will rear it's ugly head the
moment any slowdown in growth is on the horizon. That will trigger lower
spending, job cuts, and other means that would bring us into recession.

~~~
TheLuddite
Recessions are usually triggered by market sentiment...unless a volcano
explodes and blocks off the Sun or something like that.

~~~
mrep
Market sentiment effects it but I don't think it is usually the trigger.
Wikipedia doesn't have anything on triggers but I remember my econ textbooks
taking about it and there is usually one thing that pushes it over the edge
like oil shocks or the housing loan defaults.

~~~
auiya
Or student loan defaults?

------
the_watcher
> This matters to investors because, although bear markets are only fair
> predictors of recessions (seven of 13 postwar bear markets were followed by
> economic downturns)

Roughly the same predictive power as flipping a coin isn't what I'd call a
"fair predictor".

~~~
dragontamer
The yield inversion predictor is 100% over the past 40 years with no false
positives. The only problem with yield inversion is that it may be 2-years or
3-years early. (2005 yield inversion was followed up by recession in 2007).

Here is a graph of 10-year minus 2-year, a yield inversion is whenever the
graph dips below 0%.

[https://fred.stlouisfed.org/series/T10Y2Y](https://fred.stlouisfed.org/series/T10Y2Y)

The yield inversion predictor is incredibly powerful.

\----------

EDIT: Part of the reason for yield inversions to happen is that a large number
of people are buying long-term bonds, because they think a bear market will
exist. Its better to hold onto a 10-year bond through a recession, because
short-term rates will drop during a recession.

We don't quite have a 10-year inversion yet, but we have a 7-year inversion.
5-year yields less than 1-year at the moment. So investors prefer making less
money on a 5-year (to guarantee a stable interest rate), rather than 1-year.

That means a large number of people are predicting a recession.

~~~
oceanplexian
Predicting something 2-3 years early is not a "prediction", it's a failure to
predict.

I'll suggest better predictors of the health of the economy would be 1) Record
domestic manufacturing output, 2) Most energy security in history (US is now a
net exporter of oil), and 3) lowest unemployment since 1969. The US Economy is
firing on all cylinders and I wouldn't be surprised if a strong economy runs
for another 2-5 years. This is not all that unusual, since the US is returning
to a historical average GDP growth rate of 3-4% after an abysmal decade of
1-2% growth.

~~~
checkyoursudo
> Predicting something 2-3 years early is not a "prediction", it's a failure
> to predict.

Why do you say that?

~~~
snowwrestler
Predicting the economy will experience a recession is like predicting a person
will die: you'll be right eventually, but without knowing _when_ , you can't
do much useful with that information.

~~~
dragontamer
IMO, this is the time for policy makers to start to debate policy changes. It
takes over a year for tax laws to have any effect for example, and maybe 2 or
3 years before tax laws really kick in and affect the economy. (First year,
people will be typically surprised at their new refunds instead of really
spreading it over the year)

Trump's Tax Cuts were written into law in 2017, but only these months (tax
season 2019) is when people are fully understanding the scope of the tax law,
as it hits our pocketbooks.

A surefire predictor within 2-years or so is good for policymakers, but
probably bad for traders.

------
nemo44x
"The U.S. Is Getting Closer to a Recession, Data Show"

Of course the U.S. is - every day we are one day closer to the next recession.
It's that nobody knows when that day is. A lot can happen between now and
"that day".

~~~
cal5k
But maybe _this_ time we'll be able to prevent it! ;-)

The media loves to point fingers at specific individuals/organizations that
are ostensibly responsible for each recession, but there's no known way to
completely dampen the oscillations without deep-sixing the economy.

------
paulpauper
A google search of past failed predictions of recession shows people
,including experts with PHDs, are generally not good at this. In hindsight
they can explain why the economy went into recession but are hopeless at
predicting when

------
lbacaj
These articles on the “coming down turn” are written in such a way that they
seem so matter of fact.

The article basically says that they had people study past recessions and
therefore the markers are there, but things in the real world don’t work like
this at all. They say that the tax cuts extended the bull run for two years
but now it’s over, as if they are 100% sure.

Fidelity who, I guess, sponsored the study should follow its own advice that
they give their customers “Past performance does not guarantee future
results”.

Therefore I just feel these people are shorting the market and trying to move
things in their preferred direction.

However, in reality no one knows what will happen next and no Model can tell
us. There are so many variables at play right now in our modern economy and
saying that there will be a recession in the future is like saying everyone
has to die at some point.

------
scarface74
Hitting close to home, I wonder which software companies would survive and
where would VCs be willing to invest during a recession?

During the dot com bust in 2000, my local job market for developers full of
just regular companies writing internal apps wasn’t affected at all. The
company I worked for in the bill pay industry, kept humming along.

During the 2008 recession things were a lot crazier until 2011. The investors
weren’t willing to invest in our pivot from writing software for ruggedized
Windows Mobile/Windows CE devices for large companies to smart phones.

I would think that companies working in the health care industry would still
be attractive.

~~~
whatok
Software-wise it really seems like it depends on how bad things really get.
SaaS spend might actually be relatively sticky if sales across the board
decline but there aren't widespread business failures on the idea that it's
replaced internal infrastructure required to run the business.

------
AndrewKemendo
I think we're already in it.

Over the past year or so, each of my friends from a broad swath of industries
say their company is going through layoffs. Almost across the board,
everything from marketing to engineering.

~~~
samfisher83
Unemployment is very low and we are adding jobs. I usually get 2-3
recruiters/week contacting me. However you do some seem some layoff stories
too. I am wondering where these jobs are going.

~~~
searine
Not all jobs are equal. Are the jobs we are adding good ones? or desperate
ones?

~~~
rfinney
[https://www.cnbc.com/2019/02/01/nonfarm-payrolls-
january-201...](https://www.cnbc.com/2019/02/01/nonfarm-payrolls-
january-2019.html) : On a year-over-year basis, though, [wages] still amounted
to a 3.2 percent increase, consistent with the past few months and around the
highest levels of the recovery.

Higher wages are a good thing.

~~~
rgbrenner
That's 1% wage growth after adjusting for inflation.

~~~
rfinney
Fair enough, we should adjust for inflation.

From Brookings : "Real median household income grew roughly 1.6 percent in
2018" [https://www.brookings.edu/blog/up-
front/2019/01/31/household...](https://www.brookings.edu/blog/up-
front/2019/01/31/household-income-likely-continued-to-grow-as-employment-and-
wage-gains-lifted-incomes-in-late-2018/)

Median household income : $60K . $60K * 0.016 =$960.

~~~
rgbrenner
note the reason for using household income: it includes those who were
previously unemployed. It's a way of blurring the line between the average
person's earnings and unemployment. Of course if we want to know the
unemployment rate, there are separate stats that clearly show that. The only
reason to include it here is to make wage growth look better than it would
otherwise.

Removing those who found a job, we get back to the lower 1% number. And a big
part of that is people just working longer hours.

------
adventured
> in June the economy will celebrate a decade of recovery from the Great
> Recession

Or the US already suffered a mild recession in 2015 and the recent higher
growth is a bounce out of that.

S&P 500 corporate profits contracted for four straight quarters from mid 2015
to mid 2016. Sales contracted for six straight quarters.[1]

From July 2015, to November 2016, manufacturing employment contracted slightly
(essentially was flat). Manufacturing employment has exploded higher since
that month.

The U6 unemployment rate was stuck between 10% and 9.6% between Sept 2015 and
Oct 2016.

The civilian labor force participation rate for 25-54 year olds (the single
most important participation rate), was fairly stable from January 2013 until
mid 2015 (after finding a new general floor post great recession), and then
suddenly plunked to a new post great recession low of 80.5% in July 2015. It
has been setting higher lows and higher highs ever since that drop.

Consumer confidence, which had been rising persistently for years post great
recession, stopped going up and then declined from early 2015 through early
2016.

The S&P 500 index was near a peak in May 2015 at around 2134, then proceeded
to go nowhere for a year to ~June 20 2016 when it was at 2032. During that
weak year, it hit a low of around 1810 (~15% decline).

The small business confidence index tanked from the first quarter of 2015,
until early to mid 2016.

The markit US manufacturing PMI began tanking from a high in mid 2014, until
it bottomed out in the second quarter of 2016.

The consumer price index had been rising for years post great recession,
stopped rising in mid 2014, flattened out until Oct 2014, plunked lower until
Jun 2015, then proceeded to go nowhere for another nine months. In net the
consumer price index went no higher from Jun 2014 until Mar 2016. The price
index then resumed climbing after Mar 2016. That ~20 month dead spot was the
longest post great recession.

In 3Q15 GDP growth dropped dramatically from the prior five quarters, to 1%
(3Q14 was 4.9% by comparison). 4Q15 GDP growth dropped further to 0.4% (4Q14
was 1.9%). 1Q16 was 1.5% (1Q15 was 3.3%).

If you've got 1% and 0.4% quarterly growth back to back, with a near zero fed
rate, what you've got is a recession.

There are countless more data points that indicate the US suffered a mild
recession at some point over that year.

[1] [https://www.wsj.com/articles/corporate-profits-set-to-
shrink...](https://www.wsj.com/articles/corporate-profits-set-to-shrink-for-
fourth-consecutive-quarter-1468799278)

~~~
AnimalMuppet
> If you've got 1% and 0.4% quarterly growth back to back, with a near zero
> fed rate, what you've got is a recession.

No. If you've got two quarters back to back with _negative_ growth, _then_
you've got a recession. That's literally the definition.

------
buboard
And in the long run we re all dead

------
nevir
My God, the grammar of that title.

------
gammateam
I really dont think that lack of growth of the quantity of goods produced for
a few quarters is really so big of a deal

This is how recession and depression are defined, when gdp simply isnt growing
a fraction of a percent quarter over quarter. Is this really a proxy to give
insight into everything effecting the general population? The words recession
and depression are loaded with so much more than what they actually track, I
think just saying them slows down the business spending and lending facilities
more than the actual trend of printing slightly lower gdp numbers per quarter.

------
SqwRock
I'm from Europe and I remember very well the 2008 financial crisis. The
corrupt banks in America and their massive bailout waved over the ocean and
crashed the markets here in Europe, then I was pretty young and I could hardly
understand how the housing loans there can lower my salary here. It's funny
how naturalized the language is, as if markets are some natural force that
goes up or down independent of people's will. Living under capitalism at it's
best.

~~~
dazc
You missed the UK based banks and financial institutions that were acting just
as badly, such as RBS and others?

~~~
freehunter
Or even in Iceland, which was notable because they allowed their banks to fail
for the role they caused in the recession?

[https://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_fi...](https://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_financial_crisis)

