November Macro Update: Recession Risk Remains Low

Summary: The macro data from the past month continues to mostly point to positive growth. On balance, the evidence suggests the imminent onset of a recession is unlikely.
The bond market agrees with the macro data. The yield curve has ‘inverted’ (10-year yields less than 2-year yields) ahead of every recession in the past 40 years (arrows). The lag between inversion and the start of the next recession has been long: at least a year and in several instances as long as 2-3 years. On this basis, the current expansion will last well into 2018 at a minimum. Enlarge any image by clicking on it.
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Unemployment claims are also in a declining trend; historically, claims have started to rise at least 6 months ahead of the next recession. Note that recent hurricanes had a short-term negative impact on economic data. In the past, growth has quickly resumed. Thus, jobless claims recently spiked higher after Harvey/Irma, as it also did after Katrina and Sandy, but recent claims are already at a new 40+ year low.

This post was published at FinancialSense on 11/10/2017.