- Five recession indicators that were a warning sign about the economy have since retreated.
- Ned Davis Research said its recession probability model has plunged to 2%, suggesting “minimal odds” of an economic slowdown.
- “The reversal of these historically important indicators shows why it is risky to rely on a few indicators that support a particular point of view,” NDR said.
Various economic indicators that suggested an impending recession not long ago have since declined, according to Ned Davis Research.
This means that investors probably won’t have to worry about an economic recession in the near future. This is a turnaround from just a few months ago, when various economists and market strategists were still preparing for a recession.
From the Index of Leading Economic Indicators to the inverted yield curve, the NDR has highlighted five recession signals that should no longer worry investors.
“The reversal of these historically important indicators shows why it is risky to rely on a few indicators that support a particular point of view,” Joseph Kalish, NDR strategist, said in a note published Friday.
These are the five recession indicators that are no longer flashing red as the resilient U.S. economy continues to grow.
1. NDR Recession Probability Model
NDR’s internal recession probability model is derived from national employment and income data, and when it hits the 50% level, it triggers a warning of an impending recession.
The model jumped to 43.5% in December, just below the 50% trigger level, but has since plunged to just 2.1% in February thanks to several data revisions and seasonal factor updates, according to NDR.
This indicates “minimal chances” of a recession at present.
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2. Household employment levels
“The household employment survey was much weaker than the establishment survey earlier this year. Adjusting household employment to the payroll concept showed a significant gain of 352,000 in March, after three consecutive months of decline. The only times this happened were during and immediately after the GFC and during the pandemic,” Kalish said.
3. Gross domestic income
Measuring the U.S. economy by income levels is less popular than measuring GDP based on consumption, but it provides insight into the health of income levels in the United States.
“In theory, the two measures should be equal, since one person’s spending is another person’s income,” Kalish explained. But these two economic measures have not been equal recently, sending warning signals about unsustainable growth in the economy.
GDP has been significantly stronger than GNI for four consecutive quarters, with annualized GDP above 2%, while GNI failed to reach 2% during this period. But this trend finally reversed in the fourth quarter, when GNI surged at an annual rate of 4.8%, far outpacing the GDP figure of 3.4%.
4. Leading Economic Index
“The Conference Board’s LEI has declined for 23 consecutive months, pulling its six-month variation and diffusion indices into an area of economic contraction. In February, the LEI rose 0.1% and the Conference Board no longer expects a recession,” Kalish said.
You can read more about the recent reversal of the LEI index here.
5. Inverted yield curve
An inverted yield curve, which occurs when short-term interest rates exceed long-term interest rates, has long been a closely watched recession indicator, but since turning negative in July 2022, the recession signal from the yield curve has not materialized. NDR believes this will continue to be the case.
“Finally, 525 basis points of Fed rate hikes and an inverted yield curve were expected to generate a recession by now. Both of our composite indicators gave a contraction signal in October 2022. Since this signal, the “The coincident economic index gained 2.3%,” Kalish said. said.
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