A Funny Thing Happened on the Way to the Recession

Last year presented us with the largest consensus of economists forecasting an imminent recession that we ever recall. Contrary opinion theory says that when people start to think alike it is time to look in a different direction. After all, if businesspeople and investment advisors think a recession is on the way, is it not logical that they will already have taken steps to protect themselves from such a downturn?

At Pring Turner we are very data driven and agree that at first glance, it looks as if the economy is headed for a recession. Several of the leading economic indicators we follow are literally right at recession triggering levels, on the edge of a cliff if you will. Given the expectation of rising short-term interest rates and the reality of an inverted yield curve, it is not difficult to project a weaker economy.

Indicators On the Threshold of a Recession

For example, our Pring Turner Leading Economic Indicator calls recessions when it approaches the “Recession Line” in Chart 1. Some recessions, as we can see from the vertical lines and red highlights, start prior to reaching the line. Others lag the crossover, so it’s not an exact science. However, this indicator is certainly in the ballpark for a signal, should things deteriorate further. In that respect, the recent slowing of its downward trajectory is an encouraging sign that further damage can be avoided.

Chart 1 Pring Turner Leading Economic Indicator and the Recession Caller

Negative crossovers of the recession line warn of an impending recession.