Some economists are issuing recession alerts for the U.S. in 2016, fueled by seven years of the weakest economic growth since 1937 and 2015 ending with economic growth close to zero. Others, however, are more optimistic pointing to gains in employment and spending.
Economic signals for 2016 are truly mixed.
Recession harbingers: the national and Creighton regional ISM readings for manufacturing have been below growth neutral for three straight months; the U.S. stock market as measured by the S&P 500 index is down by 10.3% over the past six months signaling weak corporate profits; in the fourth quarter 2015, U.S. worker productivity fell by 3%, GDP expanded by an anemic 0.7% and exports declined by $0.5 billion; and the percentage of the U.S. population in the labor market is at its lowest level since 1978.
Growth signs: the U.S. economy added 1,137,000 jobs over the past six months and the unemployment rate declined to its lowest level in 8 years; average weekly earnings expanded by 2.5% over the past year (not great, but not bad); and consumer spending rose by 2.2% in Q4, 2015.
The most telling statistic is the yield curve. The yield curve is the difference between the yield on the 10-year U.S. Treasury bond and the 2-year U.S. Treasury bond. When the short-term bond yield rises significantly due to Federal Reserve rate hikes and the long-term bond yield declines due to investor's pessimistic outlook, the economy is likely to slow.
Six months before the beginning of the last 3 recessions, the difference between these two bond yields sank into negative territory. While the difference in yields has been trending lower, it currently stands at 1.0%.
At this point in time, the yield curve is not signaling a 2016 recession, but this important indicator needs a watchful eye.
Ernie Goss
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