Recession Concerns Revisited: Sky Still Not Falling
In the fall, we published a white paper exploring recession concerns: Gauging U.S. Recession Risk. At that time, we did not see any indications of a recession. Fast-forward to today, and the United States is now in the second longest economic expansion since the mid-1800s (107 months, including May). Previously, the longest expansion was from 1991 to 2001.
I’m still very optimistic about current trends, and that the economic recovery will last for some time to come. In fact, in the May 2018 Wall Street Journal Economic Forecasting Survey, most economists indicated they believe the recession will start in 2020, offering several opinions about when and why it might happen.
Recession Concerns: Yield Curve Has Yet to Invert
The financial press has been very active reporting on the inversion of the yield curve. However, it hasn’t inverted yet. We still have a ways to go. In the chart below, we look at the one-year constant-maturity Treasury bill versus the ten-year constant-maturity Treasury bond rates dating back to 1955. If you calculate the distance between the onsets of the first incident of an inversion to onset of the next recession, it’s an average of 17 months.
That means if the yield curve were to invert today, we would expect the recession to start in about 17 months. But, certainly not immediately. I’m optimistic that from a yield curve perspective, we still have several months to go before we reach inversion. And I believe we have several months after that before we see any economic trouble. I also want to note, inverted yield curves do not cause a recession. They often pre-date a recession, and they are often indicative of weakening conditions.
Webinar: Q2 US Economic and Credit Trend Outlook
Learn more about the economy and consumer credit trends in our Q2 US Economic and Credit Trend Outlook Webinar. It features Amy Crews Cutts of Equifax and guest speaker Cris deRitis of Moody’s Analytics. Watch now.
 The National Bureau for Economic Research (NBER) is the official agency responsible for dating recessions in the U.S. Recession and economic expansion dates are available (accessed May 29, 2018).
Recommended For You
Since the last U.S. recession in 2008, financial risk management has seen significant changes. Lending requirements are tighter, verification procedures […]
This question sounds absurd. But this is one of the most important questions lenders must ask themselves when making consumer […]
Calibrating premium to risk is crucial to your business – and the business of daily life for your customers. What […]
Risk models eventually become less predictive or relevant due to evolving market conditions. New and improved versions routinely replace the […]