August 8th, 2011
Econontersect: Economist Mark Perry (Carpe Diem) pointed out last week that the New York Fed inflation risk gauge is stuck on zero. This is a metric which uses the slope of the yield curve (from the 3-month rate out to the 10-year rate) to determine the probability of recession within the next twelve months. Recessions are only likely to occur when the curve flattens (the rates are more nearly equal) or inverts (the short-term rate is higher than the long-term. In the past, recessions have not occurred unless preceded by a flat or inverted curve. Follow up:
Follow up:Here is the chart from Carpe Diem:
Another economist, Nouriel Roubini, said last week that the U.S. is near recession, as is much of the rest of the world. Roubini said: “The outlook to me looks very bleak.” Roubini was quoted in an article at Business Insider.”
Editor’s note: Roubini is nicknamed Dr. Doom because of his generally dismal economic outlook for much of the past decade.
Edward Harrison is a second economist whose thinking is more aligned with Roubini that with Perry. Writing at Credit Writedowns, Harrison said:
“… Europe and North America are at stall speed with few if any mitigating factors to forestall recession in the event of an exogenous shock.”
The latest forecast from Global Economic Intersection is for a continuing economic slowdown in August. However, GEI has not issued an early “watch” signal for a possible recession, although the collapse of the Econintersect Economic Indicator (EEI) has been significant. In the downturn in the economy in 2010, EEI issued a recession watch during three months (September through November). The EEI is very close to those year-ago levels as we enter August.