Speech

Is a Recession Around the Corner?

Abstract: Along many dimensions the economy looks quite healthy. The labor market is very strong. And although GDP growth is slowing, it appears we are converging to trend rather than underperforming versus our potential. Several leading indicators point to continued economic growth, including consumer confidence, consumer spending and initial claims for unemployment insurance. Historically, an inverted yield curve has predicted recession. However, it’s likely that the signal sent by the yield curve has changed as a result of declining term premiums and international demand for U.S. Treasuries. Some observers also are concerned about recent contractions in manufacturing activity. But the ISM’s Purchasing Managers Index is still well above the level that indicates the economy as a whole is contracting. In addition, manufacturing is a smaller share of the economy and might not have the same explanatory power. I am more concerned about weakness in business investment. In my view, this weakness is the result of political and regulatory uncertainty, both at home and abroad. I am also concerned about potential shocks due to global, financial or cybersecurity risks. In the current environment, it’s important to step up on the fiscal side. The biggest boost to our economy would come from lessening the uncertainty and lowering the volume. Net, the economy is still healthy. While there is always the risk of a shock, the Fed has done a lot to support the economy’s continued expansion and to provide buffers against the downside.

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Speech

Publication Date: 2020-01-09