Is the recession obsession justified?
Something strange happened toward the end of the summer—the word “recession” re-entered the mainstream. If you just read the headlines, you might have thought we were in a recession already. According to Google, the word “recession” has only been searched more during the global financial crisis. This re-emergence is not without an explanation: Markets and economic data are showing some troubling signs.
The most acute cause for concern is that the spread between 10-year Treasury yields and 2-year Treasury yields temporarily inverted in August. Historically, an inversion of the yield curve has been a reliable indicator that a recession was coming soon. It’s not just bond markets. The Federal Reserve retreated from its rate hiking campaign by lowering interest rates at the end of July. Globally, manufacturing and trade data is suggesting very weak levels of activity, and the tit-for-tat escalation of the trade dispute between the United States and China is damaging sentiment and adding to uncertainty.
Enthusiasm after China stimulus and Trump’s election was short-lived