The yield curve does not lie, a recession always follows an inversion within a little over a year on average. The 1-10 curve inverted last July. Here I review the last 50 years of the business cycle to see what the longest interval was from inversion to NBER-defined onset of a recession, and it was from January 2006 to December 2007, before the Great Financial Crisis, 23 months, which would take us to June 2024 in this cycle.
With today’s non-tightening, would the economy be able to sustain itself that long? If the fascist Neocons continue to drag the US into a world war, then yes, there would be sufficient fiscal stimulus to do that.
But from August onward, the economy is living on borrowed time, so to speak. But for the economy to experience a classic collapse of confidence, the unemployment rate must rise from 3.7 percent to meet the adaptation level, currently at 4.8 percent. See my article from last summer's equinox in ZeroHedge, “Whither Animal Spirits,” for a simple explanation of my theory of confidence levels, or the appended post.
Whither 'Animal Spirits'?
According to the Michigan Consumer Sentiment Series, confidence is at record lows. But a measure of confidence or “animal spirits,” as Keynes called it, that I developed in the 1990s — that was featured on the front page of the Wall Street Journal, February 20, 1998 — is now showing very healthy “animal spirits.” So which one is right?
Have a blessed day!