April 2023
Safe zone |
Nearing threshold |
Threshold crossed |
Early Warning Signs
Current reading for six early indicators of recessions, sorted by typical lead time (earliest → latest)
Indicator | Type | Threshold | Typical Lead | Latest Reading | Indicator Description |
Conference Board: Consumer Expectations – Present Situation Spread | Consumer Activity | Spread < -30 (3rd straight month) | 12 – 36 months | -83 | The spread between the two major components of the Conference Board’s Consumer Confidence Index. A wider spread between these components has been shown to reliably lead downturns with a long lead. |
The Yield Curve: 10 Year – 2 Year Spread | Financial | 10 year - 2 year spread < 0 ("Inverted") | 12 – 24 months | -38 bps* | The 2y-10y yield curve is the spread between short-term and long-term government bond yields. When short-term yields rise above long-term yields, it shows that investors are increasingly worried about the near-term health of the economy and a recession is likely close. |
NAHB Housing Market Index | Housing | Y/Y ∆ < -15% (3rd straight month) | 6 – 18 months | -44% | An index that measures homebuilder sentiment. The housing sector has been shown to reliably lead broader downturns in the U.S. economy. |
Elkhart Employment | Labor Market | Y/Y ∆ < -3.0% | 6 – 12 months | -3.4% | Elkhart, Indiana comprises more than 65% of the recreational vehicle (RV) industry. Since big-ticket items like RVs are among the first goods consumers pull back on, the RV industry is particularly sensitive to downturns in consumer activity. |
Consumer Activity | |||||
Conference Board Leading Economic Index (LEI) | General | Y/Y ∆ < 0% | 6 – 12 months | -6.5% | A composite index tracking the entire U.S. economy. This index is a “catch-all” indicator that offers a broad assessment of national economic growth. |
NFIB Capex Plans Index | Business Activity | Y/Y ∆ < -5.0% | 3 – 12 months | -22% | An index derived from a survey of hundreds of U.S. small businesses regarding their plans and expectations in the coming months. The “plans to make capital expenditures” sub-index has historically been a reliable recession indicator. |
Safe zone |
Nearing threshold |
Threshold crossed |
Imminent Signals
Current reading for six imminent indicators of recessions, sorted by typical lead time (earliest → latest)
Indicator | Type | Threshold | Typical Lead | Latest Reading | Indicator Description |
Housing Starts ÷ Jobless Claims | Housing | 3MMA Y/Y ∆ < -20% | 3-12 months | -16% | Housing starts are a leading indicator and jobless claims are lagging. A coincident-lagging ratio acts as a leading indicator because as an expansion peaks the coincident indicator will be rising more slowly than the lagging. |
Labor Market | |||||
C&I Loan Delinquency Rate | Financial | Q/Q ∆ > 0% (2nd straight quarter) | 0 – 9 months | -6 pp | Delinquencies on C&I Loans are effective in measuring business financial health. When delinquencies rise, it signals that businesses are facing broad deterioration in economic conditions. |
Business Activity | |||||
Capacity Utilization | Business Activity | M/M ∆ < 0% (3rd straight month) | 0 – 6 months | -0.1 pp | Capacity Utilization is the percent of capacity in mining, manufacturing, and utilities that is currently being used. Although secular decline in its composite industries makes it an imperfect recession indicator, consistent declines in a short period are cause for worry. |
Industrial Activity | |||||
Consumer Confidence ÷ Unemployment Rate | Consumer | Y/Y ∆ 3MMA < -6% | 0 – 6 months | 6.8% | Consumer Confidence is a coincident indicator while the unemployment rate is lagging. A coincident-lagging ratio acts as a leading indicator because as an expansion peaks the coincident indicator will be rising more slowly than the lagging. |
Labor Market | |||||
University of Michigan: Household Durable Goods Purchasing Sentiment Index | Consumer Activity | Y/Y ∆ 3MMA < -10% | 0 – 3 months | 6.3% | An index measuring consumers’ feelings about whether it is a good time to purchase large household durable goods. This is an area of spending that consumers tend to cut first when the economy sours. |
Chicago Business Barometer | General | Index <45 (2nd straight month) | Coincident | 43.6 | A diffusion index measuring general economic activity in the Chicago area. The index has a proven track record of leading broader shifts in business cycles in the U.S. |