Recession Indicators

Homeowners often ask me if I predict a recession coming and as we all know that is VERY difficult to predict. Although, measuring where we are in the economy according to the business cycle can provide a better idea on determining how much longer the economy will continue growing. 

I share this type of information to you because if I stay up to date on the economy and geopolitics, then I can provide you the best advice possible regarding your real estate needs. My philosophy in everything is to stay one step ahead of the competition. Thus, my goal is to be your longterm realtor.

One of the most prominent recession indicators is when there are two consecutive quarters of negative growth in GDP. However, another indicator is when the yield curve "inverts". Ideally it is always best when the yield curve is normal because once it flattens or worse inverts- trouble emerges. Lately, the yield curve has been flattening.   

  Robert Kaplan (the President of the Federal Reserve Bank of Dallas) suggests that GDP will be 2.5% to 2.75% for 2018 but GDP growth will soften next year and by 2020 GDP will only reach 1.75% to 2%. Thus, a slowing economy to come soon. Watch full video of him discuss this  here. 

Robert Kaplan (the President of the Federal Reserve Bank of Dallas) suggests that GDP will be 2.5% to 2.75% for 2018 but GDP growth will soften next year and by 2020 GDP will only reach 1.75% to 2%. Thus, a slowing economy to come soon. Watch full video of him discuss this here. 

 

It has been all over the news lately that the current yield curve is flattening which means a change in economic conditions as this type of curve occurs from a transition of either a normal or inverted curve. For sometime now the yield curve has been normal but now that the yield curve is flattening, investors are worried that the curve may transition to an inverted curve!  The video as shown above will show different perspectives from multiple investors on whether or not it is time to worry.

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"A normal yield curve is one in which longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. In a flat or humped yield curve, the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition."- Investopedia.com 

Andrew Vargas