Worried the US is on the cusp of another recession? Russ shares the economic indicators worth paying attention to.
Over the last several weeks, investor angst has shifted from China back closer to home. It has become increasingly clear that the US isn’t immune to the global slowdown. Given plunging inflation expectations, a stalling manufacturing sector, a slowing labor market and the Fed’s delay, investors are increasingly asking: “Is the US on the cusp of another recession?”
For now, the recent spate of US weakness appears to be a slowdown, not a full-blown recession. However, the risks to the US economy have certainly gone up.
Market Realist – Is the US heading for another recession?
Over the last month, we’ve seen signs that the US economy might be slowing down. The job numbers have been disappointing over the last two months. Non-farm payrolls rose by a seasonally adjusted 142,000 in September compared to 136,000 in August. The figure was revised down from 173,000. The last two months have bucked the trend of 200,000 or more jobs created in most of the last 18 months.
Also, we have yet to see consumption rise significantly. Retail (RTH) sales grew by a meager 0.1% in September while retail sales were flat for August. Meanwhile, industrial (DIA) production remains tepid. You’ll find more on this trend in Part 5.
Inflation expectations are also falling. This second graph shows the ten-year breakeven inflation rate, which is the difference between the yield on the ten-year Treasury (IEF) and yield on ten-year Treasury Inflation-Protected Securities or TIPS (TIP). Ten-year inflation expectations dipped from 2.2% in July 2014 to 1.5% currently. Meanwhile, year-over-year headline inflation based on the consumer price index or CPI fell to 0.0% in September. Core CPI, which omits volatile items like food and energy, is steady at 1.9%.
With the economy showing signs of slowing down, we’re unlikely to see a rate hike this year, which should keep Treasury (TLT) yields low.