As headwinds spanning trade wars to slowing global growth buffet the U.S. economy, talk of a possible recession is picking up, leaving investors sifting through reams of data for clues.
While almost all economists surveyed by Bloomberg expect growth to stay positive this year -- which would crown the current expansion the longest on record, at more than 10 years -- the risk of a recession is seen at a six-year high. In fact, more than three-quarters of corporate chief financial officers expect one by the end of 2020.
Meanwhile, it’s getting harder to avoid prominent voices talking about the possibility of a contraction these days, such as Nobel laureates Paul Krugman and Robert Shiller.
There’s no single indicator that would predict or determine a recession -- though some may come close -- but here are a few major data points and what they’re showing now:
Yield Curve
This may be the most closely-watched market signal of a downturn. The New York Fed has a recession-probability tracker based on the average monthly spread between yields on three-month and 10-year Treasuries. The latest reading showed the chance of a recession at 23.6 percent for the 12 months through next January, the highest since the reading for the year through July 2008. Readings below 50 percent aren’t necessarily safe, either: the index hasn’t topped that level since the early 1980s, even though there have since been three recessions.
Consumer and Business Sentiment
Billionaire investor Jeffrey Gundlach said last month that the widening gap between consumer sentiment on the current situation and expectations is the “most recessionary signal at present.” Meanwhile, a measure of small-business sentiment has lost the ground gained since President Donald Trump’s election. It’s clear that confidence measures sink during downturns, though the extent to which such surveys can actually predict a recession is debatable.
Manufacturing Surveys
The same goes for monthly surveys of manufacturers and other companies conducted by the Institute for Supply Management and five Federal Reserve banks. These tend to be volatile from month to month, though all the Fed factory gauges fell together in December for the first time since May 2016 and the ISM’s national index hit a two-year low (it recovered some ground in January). Further sustained weakness across the gauges would indicate the sector is slumping, though it doesn’t necessarily mean the entire economy is in trouble.