ISMS 32: 5 Signs of Impending Recession

<h2><strong>Warning Sign #1 - Inverted yield curve</strong></h2><ul><li><strong>It’s not the first time the Fed has fought inflation</strong></li><li><strong>Fed has been fighting inflation with its main tool</strong></li><li><strong>Steep rate hikes have historically preceded recessions</strong></li><li>Fed’s tool to fight inflation is raising the federal funds rate</li><li><strong>This is the fastest and most aggressive rate-hike cycle by the Fed since the 1980s</strong></li><li>After the 0.25%-hike in Feb 2023, the current rate-hike cycle became the most aggressive since the 1980s</li><li>The Fed has hiked rates by 5.25% in the current cycle</li><li>This has resulted in short-term rates becoming higher than long-term (yield-cure inversion)</li><li><strong>Yield-curve inversion signals 4Q23 US recession</strong></li><li>All recessions in the US since 1968 were preceded by an inverted yield curve</li><li>As it turns, recession typically follows</li><li>Average time from inversion, until the recession started, was about 1 year (so 4Q23)</li></ul><br/><h2><strong>Warning Sign #2 - Peak employment</strong></h2><ul><li><strong>US is now at peak employment</strong></li><li>Peak employment precedes recession</li><li>Unemployment now at 3.8% (same as April 2000)</li><li>Puts upward pressure on wages, which is inflationary</li><li>On the flip side, a strong labor market can keep the recession at bay</li></ul><br/><h2><strong>Warning Sign #3 - Slowdown in bank lending</strong></h2><ul><li><strong>Business lending has slowed; real estate and consumer loans flat</strong></li><li>Warns about a slowdown in business activity</li></ul><br/><h2><strong>Warning Sign #4 - Leading indicators falling &amp; bankruptcies rising</strong></h2><ul><li><strong>Composite leading indicators falling but seen a slight rebound recently</strong></li><li>The indicator looks at factors aimed at providing early signals of turns in the business cycle</li><li>While the indicator has given false signals before, recessions have typically followed lar