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Choose Your Measure, Most Point One Way

August 26, 2019

Everyone wants to know when the recession will hit. And of course, everyone has their own “best” indicator.

 

For some, it’s their investments. For others it’s employment. Some people care most about elections.

 

No matter the measure of recession likelihood, more warning signs are beginning to appear.

The truth is, our economy is still growing, but slower. If that continues, it will eventually contract – unless we get a boom of some kind. And with the worldwide economy in a vulnerable state, it probably won’t take much to send us into a recession.

 

One damning indicator is inverted yield curves (they’re everywhere). We haven’t seen the 2-year and 10-year Treasuries invert yet, but many others have, some for months.

 

But while indicators are interesting, they’re not the real economy. That’s on Main Street, where millions of people buy and sell things daily. The news there isn’t reassuring either.

All goods we buy have something in common – the transportation sector (truck, rail, freight, etc.) delivers them because not much is made near us. As such, the transportation sector is often seen as a gauge of the “real economy.”

 

Well right now, deliveries are slowing.

 

The Cass Freight Index measures every way products are delivered, and year-to-year trends aren’t encouraging:

 

Is this President Trump’s fault for the tariffs and unresolved trade talks? In some ways, yes.

 

But another culprit is years of flat wages forcing households to take on debt. Like our country, if you keep the debt train rolling, it’s only a matter of time before you’re buried.

 

Consider the following economic measures, all of which have decreased recently:

 

  • Freight shipments

  • Retailer earnings

  • Durable goods activity

  • Capital spending

  • Payrolls

  • Semiconductor inventories

  • Oil demand

  • Restaurant performance indices

That’s a lot of warning signs. All this downward momentum could lead to a recession, perhaps soon.

 

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