The Economy Has Triggered Another Notoriously Accurate Recession Indicator

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Last month, economic conditions triggered the Sahm Rule — one of the most historically reliable indicators of a recession. The market responded swiftly with a major sell-off, fueling fears of an approaching downturn. However, instead of raising alarms, experts and the media immediately sought to cast doubt on whether the rule’s activation truly signaled a recession. Even Claudia Sahm, the rule’s creator, came out to downplay the possibility of a recession.

But now, the economy has triggered another notoriously accurate recession indicator.

“The inversion of the yield curve, which occurs when short-term bonds offer a higher yield than long-term bonds, is over for now after a more than two-year-long stretch,” reports Business Insider. The 10-year U.S. Treasury yield was about 3.70% Friday afternoon, while the two-year U.S. Treasury yield was 3.66%. Several times this week, the yield curve has flipped between positive and negative territory.

The yield curve’s positive interest rate spread represents its first disinversion since September 2019 and the first time the yield curve was positive since July 1, 2022, according to data from YCharts.

According to Interactive Brokers’ senior economist José Torres, investors should pay close attention to the disinversion of the yield curve because of its long-term track record of predicting recessions.

“A positive spread across the 2- and 10-year Treasury maturities following a long period of a negative difference has historically preceded economic downturns,” Torres said in a note on Friday.

Since 1976, every single economic recession has been preceded by a disinversion of the yield curve.

For weeks, the media has been downplaying the threat of a recession, likely because such news could damage Kamala Harris’ campaign. But when a Republican is in office, the same media outlets are quick to undermine the economy at every turn. 

When Democrats are in power, they bend over backward to paint a rosy picture of the economy. We know this because they’ve been doing so for over three years, gaslighting the public, insisting the economy is thriving even though Americans are struggling thanks to Bidenomics and inflation.

For our VIPs: Why Are Experts Ignoring Recession Signals?

In fact, the report on this historically accurate recession indicator sought to downplay recession fears.

The August employment report showed employers added 142,000 jobs, which was below economist estimates of 164,000. The reading sparked fresh concerns of a continued slowdown in the broader economy.

Yet, economist James Reilly at Capital Economics isn’t so sure the disinverted yield curve will prove to be the same canary in the coal mine it’s been historically.

That’s because various measures of risk premia across markets are not ringing alarm bells today like they were one month ago when the yen carry trade unwind sparked a sharp decline in the stock market.

“On balance, investors seem to think that disinversion will not be followed by a recession. That is to say, they think this time will be different. That’s always dangerous, of course – but we are of the same view,” Reilly said in a Thursday note.

Reilly did add that “the signal can’t be ignored entirely,” but for crying out loud, have you ever seen such a desperate attempt to gaslight Americans about the state of our economy before?