On Wednesday, the yield on the 10 year Treasury bond dipped below the 2-year rate. The inversion of the bond yield curve is a common sign for the beginning of a recession, which scared off investors and dropped Dow Jones a whopping 3% (800 points). Despite all the current panic surrounding speculations of an emerging recession, according to Credit Suisse, we shouldn’t be worried.
Credit Suisse has been tracking 7 key factors of the economy, for past recessions dating back to November, 1973: yield curve, inflation trends, job creation, credit performance, ISM mfg., earning quality, and housing market. For each past recessions, usually 6 out of the 7 economic factors are exemplifying recessionary behaviors with one or no factors showing any growth. However, currently we are experiencing expansionary economic behavior in inflation trends, job creation, credit performance, and earning qualities. The only recessionary economic factor appears to be the yield curve.
Despite evidence to the contrary, many in the public still believe we are heading towards a recession. The impact of the public having worries and doubts about our economy is that as the public loses trust in the economy, investment slows and, ironically, damages the economy itself. With the trade war still escalating, any additional damage to our economy caused by slow investment is the last thing we need.
Keith Knutsson of Integrale Advisors commented that, “With the majority of the US economy still expanding and flourishing, we have little reason to believe that there will be a recession soon.”