Recessions are a natural part of economic growth. The last big one was 14 years ago and it’s only a matter of time before the next one comes along. These are 5 indicators of upcoming significant economic downturn in 2022:
High inflation:
The U.S. Bureau of Labor Statistics has today announced the highest inflation in 40 years at 7.9%. Jump does not include recent oil price spike, which would make inflation even higher. As we can see from history, a high rise of inflation is often followed by a recession. Not to mention Europe, where the inflation situation is much worse because of the Russian invasion.
US Treasury Yield Curve was inverted:
The US Treasury Yield Curve is considered as one of best recession indicators. It was recently inverted, meaning short term interest rates were higher than long term rates. This unusual occurrence has historically been a very reliable indicator of an upcoming recession as it reflects investor sentiment about future economic performance. Since WW2 every yield curve inversion has been followed by a recession in the following 6-18 months, and recessions are naturally correlated with decreased stock market returns.
Big crude oil price increase:
In the past 50 years, every time oil prices, adjusted for inflation, rose 50% above trend, a recession followed. The international gauge for prices climbed well above $110 a barrel this week, crossing that threshold on worries about disruption to Russia’s exports after the country invaded Ukraine.
Low unemployment rate:
Low unemployment is like the calm before a storm. The U.S. economy has never managed to sustain a low rate of unemployment without tipping into a recession. Unemployment rates reach their lowest point around 12 months before a recession starts. Unemployment has been low in recent years, currently 3.8%. But it’s not actually unemployment that predicts recessions. It’s credit growth that is related to unemployment. In short: The lower unemployment, the more credit growth, the more likely a recession will follow.
Above average growth of the S&P 500 index in recent years:
Economic growth always leads to recession. That is how the economy works. We can see this in the S&P 500. For example, before the 2001 recession, the S&P 500 index rose nearly 50% in 2 years. Such a large increases preceded all recessions. We can observe that from March 2020 the scenario repeats itself.
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More here:
https://fred.stlouisfed.org/graph/?g=rocU
https://www.cbc.ca/news/business/us-inflation-1.6379647
https://www.currentmarketvaluation.com/models/yield-curve.php
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