- Some economic indicators are showing that a recession could be coming sooner, rather than later.
- The yield curve is now partially inverted, with yields on two- and three-year T-notes currently higher than five-year T-notes.
- The current economic expansion is among the longest uninterrupted stretches of growth in American history.
The potential for a looming recession has hung over the U.S. economy for some time now, with economists assuring Americans that it’s coming even as unemployment is hitting record lows and the economy appears to be chugging along steadily.
However, recent activity in financial markets could be indicating that the feared start to a recession is coming sooner than people expect. Here’s a closer look at a few things that could indicate that harder times are on the way.
Stock Markets Are Falling
Since the start of October, the S&P 500 has lost 329.96 points (as of mid-day Monday, Dec. 10), a plunge of more than 11 percent. And although it’s an easy mistake to associate the performance of the stock market too directly to the broader economy, it’s also true that it’s definitely not a positive sign. Especially with the big corporate tax cut and the ensuing flood of share buybacks, falling stocks could be a sign that investors are anticipating tough times to come.
Inverted Yield Curve
Although the stock market tends to go up and down in both good and bad economies, one key indicator that has preceded every recession since the Eisenhower administration is an inversion of the yield curve — when government debt with longer maturities starts being issued with lower interest rates than T-notes that will come due sooner.
The precise reasons why this has been such a reliable indicator are wonky, but they boil down to supply and demand. Longer-term debt is in much higher demand when bond traders are anticipating a recession, so they’re willing to accept lower returns to get it.
Regardless of why it happens, there are few more reliable harbingers of doom for a booming economy and the interest rates on five-year T-notes fell below those on three-year T-notes last week. The more concerning inversion — when two-year T-notes return more than 10-year T-bills — hasn’t occurred yet, but this is something investors should be keeping an eye on.
Credit Card Debt Growth
The most recent Credit Access Survey from the Federal Reserve has indicated some concerning trends in the marketplace for revolving credit as compared to previous years. Credit card applications are getting rejected at a higher rate, and credit card issuers have been cutting people off from their cards at a higher rate. In both cases, this could indicate that credit card companies are getting tighter about who they will approve for credit and more aggressive in dealing with delinquent accounts in anticipation of an economic downturn.
The Great Recession’s Ripple Effects: Millennials Are Poorer Than Generations Before Them
Historic Economic Norms
As many Americans are considering the 10th anniversary of the collapse of the housing market that gave way to the Great Recession, one other factor that could signal a coming shrinking of the economy is just how long the present run has lasted. The economy has been growing steadily for about 10 years now, one of the longest such periods in American history.
That has plenty of economists feeling as though the U.S. is due for a downturn after the long climb back from the housing crisis has given way to stock markets hitting record highs and unemployment falling under 4 percent.
Keep reading to see why Warren Buffett says the 2008 crisis will happen again — and why he’s not worried.
More on the Economy
- 5 Experts Predict What Will Happen to the Economy in 2019
- This Income Calculator Shows If You’re Actually in the Middle Class
- The Gender Wage Gap Is Much Worse Than We Thought — But We Can Close It
- Watch: Best and Worst States for the Middle Class
We make money easy. Get weekly email updates, including expert advice to help you Live Richer™.