United States: Recession concerns are fading away
2024-12-12
■ Although economic activity in the United States stagnated in October, the deterioration of early warning indicators has begun to be curbed.
■ The priority of economic slowdown is considered to be lower regarding current policy issues.
In the United States, although economic activity stagnated in October due to the landfall of several major hurricanes and the strike of major aircraft manufacturers, the early warning indicators that had declined until September have begun to curb their deterioration. The three early warning indicators that I have been paying attention to since this summer have shown the following trends since October.
(1) The Summers Rule recession indicator calculated from the unemployment rate (October: 0.43%, November: 0.43%) fell below the threshold (0.50%) for the first time in four months in October. Although the number of unemployed people has increased since the second half of 2024, the number of layoffs has not risen sharply in the Job Openings and Labor Turnover Survey (JOLTS).
(2) The consumer confidence index (Current Situation Index, October: 136.1, November: 140.9) has risen for two consecutive months. From the perspective of the sub-items, it can be confirmed that the main reason is consumers' perception of the labor market has improved. Moreover, as with the Summers rule, if the three-month average decline compared to the highest value in the past year is measured, the decline has narrowed for two consecutive months, with September (19.23 percentage points) as the peak. In contrast to the Summers rule, the index has never exceeded the early warning threshold for recession (20.0 percentage points), and it has begun to improve when the recession signal is about to light up.
(3) The long-short spread (the difference between the yields of US 2-10-year Treasury bonds) turned from negative to positive in September as a monthly average. After October, the spread remained stable in a small positive range. With the reduction of the need for large-scale interest rate cuts and rapid interest rate cuts, the US 2-year Treasury yield has turned to rise, but after the long-short spread turned positive, the positive range has not continued to expand. Generally speaking, long-short interest rate differentials turn negative when the policy rate exceeds the neutral rate level and near the end of a monetary tightening phase and turn positive as monetary tightening progresses once economic slowdown and expectations of significant rate cuts are considered. Since then, the lack of positive magnitude and the flattening of the yield curve suggests that a sharp economic downturn requiring significant rate cuts is not expected.
Based on these results, it can be argued that the U.S. economic situation has improved since this summer, when a recession was imminent. Policy responses will affect the path forward, so a soft landing for the economy does not necessarily mean a soft landing. Still, economic slowdown is seen as a lower priority for policy issues.
■ The priority of economic slowdown is considered to be lower regarding current policy issues.
In the United States, although economic activity stagnated in October due to the landfall of several major hurricanes and the strike of major aircraft manufacturers, the early warning indicators that had declined until September have begun to curb their deterioration. The three early warning indicators that I have been paying attention to since this summer have shown the following trends since October.
(1) The Summers Rule recession indicator calculated from the unemployment rate (October: 0.43%, November: 0.43%) fell below the threshold (0.50%) for the first time in four months in October. Although the number of unemployed people has increased since the second half of 2024, the number of layoffs has not risen sharply in the Job Openings and Labor Turnover Survey (JOLTS).
(2) The consumer confidence index (Current Situation Index, October: 136.1, November: 140.9) has risen for two consecutive months. From the perspective of the sub-items, it can be confirmed that the main reason is consumers' perception of the labor market has improved. Moreover, as with the Summers rule, if the three-month average decline compared to the highest value in the past year is measured, the decline has narrowed for two consecutive months, with September (19.23 percentage points) as the peak. In contrast to the Summers rule, the index has never exceeded the early warning threshold for recession (20.0 percentage points), and it has begun to improve when the recession signal is about to light up.
(3) The long-short spread (the difference between the yields of US 2-10-year Treasury bonds) turned from negative to positive in September as a monthly average. After October, the spread remained stable in a small positive range. With the reduction of the need for large-scale interest rate cuts and rapid interest rate cuts, the US 2-year Treasury yield has turned to rise, but after the long-short spread turned positive, the positive range has not continued to expand. Generally speaking, long-short interest rate differentials turn negative when the policy rate exceeds the neutral rate level and near the end of a monetary tightening phase and turn positive as monetary tightening progresses once economic slowdown and expectations of significant rate cuts are considered. Since then, the lack of positive magnitude and the flattening of the yield curve suggests that a sharp economic downturn requiring significant rate cuts is not expected.
Based on these results, it can be argued that the U.S. economic situation has improved since this summer, when a recession was imminent. Policy responses will affect the path forward, so a soft landing for the economy does not necessarily mean a soft landing. Still, economic slowdown is seen as a lower priority for policy issues.