Yield Spread, Employment Data Forecast Recession

Another ominous chart — this one via Floyd Norris of the NYT:

"The employment statistics and the bond market are combining to send out a warning that has been heard only rarely in the past two decades: A recession is coming in the United States.

The two charts show the double warning. Both charts warned of an economic downturn before the 1990 and 2001 recessions, and they are doing so again.

While each has arguably registered false warnings, they have never done so together."

0915bizchartsweb

As can be seen from the chart, the job warning was sent out in July 1990, the month in which the recession began. A warning of the 2001 recession arrived in July 2000, but few took it seriously.

To be sure, there have been just two recessions in two decades, which is not enough to validate any set of forecast tools. But if one arrives, there will be criticism that the Federal Reserve was too slow to cut interest rates as it ignored the threat of an inverted yield curve, and that it focused on inflation for too long.

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Source:
Off The Charts: Double Warning That a Recession May Be on the Way
FLOYD NORRIS
NYT, September 15, 2007   
http://www.nytimes.com/2007/09/15/business/15chart.html

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