According to Cointelegraph, despite the US unemployment rate being close to a 50-year low and the S&P 500 index having risen 19% so far this year, there are still three economic indicators that have been able to consistently predict recessions. These leading economic indicators are key economic variables that change before overall economic activity changes, providing an early warning system for changes in the business cycle.
Yield Curve Inversion: Historically, an inverted yield curve has preceded a recession. This indicator suggests that investors are concerned about the near-term future and expect interest rates to fall due to a potential economic slowdown.
Leading Economic Indicators (LEI): The Conference Board, a nonprofit research organization, compiles a set of economic indicators called Leading Economic Indicators (LEI). When these indicators begin to decline or show a negative trend, they may indicate an impending recession.
Purchasing Managers Index (PMI): The Purchasing Managers Index (PMI) is based on five main indicators: new orders, inventory levels, production, supplier deliveries, and employment conditions. A PMI above 50 indicates expansion, while a PMI below 50 indicates contraction. The PMI is considered a very reliable tool as it provides timely and accurate data on the manufacturing sector.
The Fed is in a dilemma: the U.S. economy is currently showing mixed signals. Although rising wages and low unemployment support strong consumer demand, industrial growth indicators have been weak since 2023. In addition, the bond market shows that the market is reluctant to increase risk exposure.