Recession Review: August 2019

I once asked a professor of mine why she liked finance, to which she replied, "Well, because there is always something new happening!" I think she would find the difference between the last recession review article, which was posted on July 31 and events from the very next day on August 1 a perfect supporting example.

The trade war began a new chapter, with the announcement of new tariffs. Then yields collapsed throughout the month, with long term treasuries dropping to rates not seen in years or, in the case of the thirty-year, never before! With the collapse in yields, the dreaded moment finally came: the ten-two spread inverted for the first time since before the financial crisis.

Despite the new developments, the data underlying the EMRI model remained surprisingly stable. In fact, there was almost no change! Now, recession call shouldn't be based entirely on one indicator. Considering the news (which leans toward catastrophe), the data, and a general bias towards conservative recession judgement, I can't see my standing opinion changing. No recession!

The Endless Metrics Recession Indicator - August 2019

What to Watch

Jobs! As usual.

Language from the Federal Reserve. Does a "mid-cycle adjustment" mean just one cut? The market expects more.

2019Q3 and Beyond

Very little has changed since last month and the July article is still relevant, so I won't write extensively just for the sake of it.

For 2019Q3, I haven't seen anything yet that changes my opinion that there will not be a recession.

For 2019Q4, the impact from the flattening yield curve makes things dicier but there would need to be negative GDP readings to really start some panic. As of now, I have a really hard time seeing a recession starting in the last quarter of 2019.


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