Economists are known for being terrible at forecasting recessions, so we may already be in one and the economic expansion may be over.
“The best that forecasters have been able to do consistently is recognize that we’re in a recession once we’re in one,” said Tara Sinclair, an economist at George Washington University, in a New York Times report.
There is no early warning system, but economic expansions usually give hints about when they are drawing to a close — if you know where to look.
The second-quarter report on gross domestic product showed that the economy slowed down in the spring, exactly 10 years after the Great Recession ended, making this officially the longest expansion in American history.
It may be long and it may not be over, but this economic expansion didn’t narrow the gap between the wealthiest Americans and everyone else.
Here are some economic indicators that have historically done the best job of sounding the alarm, courtesy of the New York Times.
The unemployment rate is near a 50-year low and trending down. In the past, when it was low and trending down, there has been a less-than-one-in-10 chance of a recession within a year, according to a Brookings Institution analysis. When the unemployment rate rises quickly, a recession is almost certainly on its way or has already arrived.
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One of the best predictors of recessions, the curve shows the difference between the interest rate on short-term and long-term government bonds. When long-term interest rates fall below short-term ones, the yield curve is said to be inverted and a recession could follow. However, in the past it has taken up to two years for a recession to follow a yield-curve inversion. There’s a one-in-three chance of a recession starting in the next year, according to a Federal Reserve Bank of New York metric — not far from where it was right before the Great Recession.
Manufacturers’ orders, inventories, hiring and other activity are aggregated in an index. Readings above 50 mean the manufacturing sector is growing; below 50, the opposite. In the past, it showed signs of stress before the broader economy. Rif=ght now, theU.S. manufacturers are caught up in trade tensions and a global slowdown. The index is barely above 50.
If Americans decide to stop spending, the economy can’t grow. A 15 percent year-over-year drop in measures of consumer confidence such as the Conference Board’s index is a reliable predictor of a recession, according to economists at Morgan Stanley. By that measure, consumer confidence is flat compared to a year ago, but it has fallen since late last year. The economy isn’t in trouble.
