Economists are infamously bad at predicting recessions. Aside from all the technical challenges, ultimately it’s just so hard to imagine conditions different than those we are living. Perhaps it should not be so surprising, then, that economists routinely ignore or explain away the closest thing we have to a sure sign.

The yield curve’s inversion in mid-2019 implies that the U.S. is due for an economic downturn by year end, notwithstanding some recent positive economic trends.

  • Despite compelling reasons that we need no longer heed its warning, the yield curve has dependably confounded skeptics and proven to be a reliable harbinger of recessions for several decades.
  • The fact that the curve has since reverted to its normal positive slope does not imply that a downturn has been averted. There is always a significant lag of at least a year between when the curve first inverts and when the economy falls into recession.
  • Investors should not take any comfort from our continued (if slower) economic growth and rising stock prices since the inversion. These are normal patterns for the 12- to 18-month period between the yield curve inversion and recession.

You may read the full report here.

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Category: Economy