Is a Recession Coming?

Maybe? At some point…

Since the Great Depression, the United States has had a recession roughly every 10 years. The Great Recession ended 10 years ago. So, are we due for another one? The answer is yes and no.

While no one factor can indicate when a recession will come, there are 4 factors that may predict the likelihood of a recession on the horizon.

The first factor is the unemployment rate. When the unemployment rate falls below 4% the likelihood of a recession increases.  Since the Great Depression, that has been true for all recession, except the recession of 2008. Experts believe this is due to the fact that the cycle has gone as far as it can. According to the Bureaus of Labor Statistics, the currently unemployment rate is 3.7% as of August 2019. Are you scared yet? Don’t be.

The second factor is the yield curve. This curve shows the difference between interest on long-term and short-term government bonds. If the long-term interest rate falls below the short-term interest rate, this usually indicates a recession. Again, this has happened for every recession since the Great Depression.  The currently yield curve is -0.06%. Are you thinking that my title is wrong yet? It’s not.

The third factor is the ISM manufacturing index. The Institute for Supply Management will survey purchasing managers at major manufacturers to find out if the manufacturing sector is growing or contracting. Above 50 means the industry is growing and below 50 means they are contracting. The currently ISM manufacturing index is 47.8%. Am I sure we aren’t headed into a recession today? Yes.

The fourth factor is the consumer sentiment index. This is one of the worst indicators since a recession has probably already stared when this is down. A recession is predicted if the index declines 15%. However, this number can fluctuate from month to month. Therefore, the year over year number is more likely an indicator. The index was 100.8 in September of 2018. That number has risen to 125.1 in September of this year, but is down from 134.2 in August, however. Well at least have one indicator still above water.

We are currently experiencing the longest economic growth period in American history. This will – as do all things – come to end. While these indicators predict a recession may be right around the corner, experts believe the economy is still growing – just less rapidly.