UPDATE AUGUST 27, 2023 – Although forecasters are often wrong, current data shows an expectation for GDP to grow 1.9% (up from previous forecasts around 0.6%!!!) in the 3rd Quarter and 1.2% in the 4th Quarter. This would result in over a 2.0% growth rate for all of 2023. How wrong can those recession mongers be!!! Remember, listen to what the stock market is forecasting and not to what the economists are saying.
For 2024, current estimates are +1.3% for the year with each quarter being in the +1.0-1.5% range. It is too early to much faith in those figures. They will certainly change by yearend. But, they have been going up, not down. And no quarters are forecast to be negative. Much less the required two consecutive negative quarters. Keep putting pressure on those people calling for a recession now in 2024, after they admitted being wrong about 2023.
AUGUST 23, 2023 – Most people are aware of the inverted yield curve indicator predicting a recession. Duke professor and Canadian economist Campbell Harvey is credited with ‘inventing’ this indicator. I question that, but it doesn’t matter. The indicator has a perfect 8-for-8 record predicting recessions since World War II.
What doesn’t get much attention is the indicator PRECEDES recessions. If you see a graph, you will clearly see that the inverted yield curve comes before a recession occurs. Mr. Harvey says a recession has started on average 11-13 months after the yield curve becomes inverted. That is easy to see. It is fact. No argument from me about this lead time.
BUT, what I notice from the historical graph is the yield curve has always been at +100bp and up to +200bp by the time a recession starts. This gives us a long lead time to deal with a recession. It takes a long while and is a major move for the yield curve to go from the current -0.68% up to +1.00%-+2.00%. Until we see significant movement towards positive territory, no worries about a recession starting soon.
If you want to see what Mr. Harvey says and see the historical graph I am referring to, cut and paste the following link:
https://finance.yahoo.com/news/professor-behind-recession-indicator-with-a-perfect-track-record-says-it-remains-way-too-early-to-call-off-a-us-economic-downturn-093049502.html
Also, a sales pitch for a neat item I bought several months ago – The Tidbyt. Go to https://tidbyt.com/ to look at it and purchase one. It would make a nice gift.
Instead of having the Fake News Media on all day, I have a Tidbyt across the room from me. I have programmed it to give me current and future weather, info on tropical storms/hurricanes or other serious weather nearby, news headlines from various sources, the price of Bitcoin, and in the evenings the current 10-Year Treasury Bond yield and the difference between it and the 2-Year Treasury Bill. Right now, those are 4.34% and -0.68%. I will be aware of this moving towards zero well in advance. I do believe recently it was over -0.90%.
FYI, the yield curve stayed negative in July 2022. Thus, 11-13 months out is June to August 2023. Obviously, we are not in a recession. I believe I posted previously that this indicator would break its streak of accurate predictions. Mr. Harvey is saying be patient. He says ‘it is way too early’ to say the indicator is wrong. The stopped clock concept might make this indicator 9-for-9 one year. But, in my opinion, it is now wrong and is 8-for-9.
As there is no chance of a recession this year and the earliest it could possibly be would be the first two quarters of 2024, that would put us 18+ months out from when the yield curve went and stayed negative. Not unprecedented. But, certainly well beyond the norm.
I will wait to see +100bp to see if at that very moment we are in a recession. Remember, that will be a coincidence signal. It won’t be giving any lead time.
As I always say, we shall see.
Shaom,
The Mann