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 8 months and in several instances as long as 2-3 years. On this basis, the current expansion will likely last into mid-2019 at a minimum. Enlarge any image by clicking on it.



Unemployment claims are also in a declining trend, reaching a new 49 year low in late-September. Historically, claims have started to rise at least 7 months ahead of the next recession.




Real retail sales made a new all-time high (ATH) in July, and grew 2.4% in September. The trend higher is strong, in comparison to the period prior to the past two recessions.



Housing is the primary concern. In the past 50 years, at least 11 months has lapsed between new home sales' expansion high (arrows) and the start of the next recession. So far, the cycle high was in November, 11 months ago.



The Conference Board's Leading Economic Indicator (LEI) Index reached a new uptrend high in September. This index includes the indicators above plus equity prices, ISM new orders, manufacturing hours and consumer confidence. This index can fluctuate during an expansion but the final peak has been at least 7 months before the next recession in the past 50 years (from Doug Short).