Investors are starting to ask if a recession is coming? The mainstream media and financial press have endless stories about high gas and oil prices, inflation, supply chain disruptions, rising labor costs, etc.

There are signs of a recession, but there are signs of the economy humming along, and consumers and businesses continue to spend.

Financial Press is Negative

Despite near record-low unemployment and rising wages, the financial press and mainstream media have been beating a steady drumbeat of negative economic news. Naturally, the main concern is inflation. Below are some recent headlines that show the press’ negativity.

The bad vibes economy – Vox

The World Bank says most countries are headed for a recession, and warns of a possible return to 1970s ‘stagflation’ – FORTUNE

Strong inflation, anxious consumers add up to more worries that recession has already arrived – CNBC

Elon Musk Sees a Recession Coming. Here Are 3 Ways to Protect Yourself – Hackernoon

A recession in America by 2024 looks likely – The Economist

Corporate America Turns Up Volume on Warnings About Economy – Bloomberg

Recession is coming, but it’s a necessary evil, PNC CEO Bill Demchak says – Pittsburgh Post-Gazette

With Risks of a Recession Rising, Take These Steps Before One Hits – CNET

The Federal Reserve’s ‘Most Anticipated’ Recession In History May Be Coming – Investor’s Business Daily

In any case, you get the point that a recession may not be imminent, but the financial press and major institutions anticipate that one is coming.

Economic Indicators

The main reason for the negative press is economic indicators are decelerating and suggesting an economic slowdown even if a recession is not coming immediately.

• New home sales have fallen ~17% and are at their lowest since April 2020. Although troubling, the current rate is near the average between April 2017 and April 2020.

Source: US Census Bureau

• Mortgage applications have fallen to the lowest level in 22 years as 30-year mortgage rates increased by over 5%. Years of low-interest rates have left many homeowners with rates below the current 30-year mortgage rate.
• Homebuilder sentiment is declining.
• Class 8 truck orders are running well below 2021 due to supply chain issues and a lack of semiconductors.
• Retail sales are slowing as consumers focus on groceries, gasoline, and necessities. As a result, major retailers like Target (TGT) and Walmart (WMT) are slashing prices to clear inventory. Furthermore, they are reporting higher costs and lower margins. Even Amazon (AMZN) is reporting lower Q1 2022 online retail sales.
• Corporate credit spreads are widening, usually correlated with slowing growth and economies.

Source: St. Louis Fed

• Unemployment claims are inching up but are still at the lowest levels in years.
• The PMI Index is weakening, a sign of a slowing economy.
• Stock markets are in a correction.

Recession Indicators

The skyscraper index is a popular and odd one linking the construction of the world’s tallest building to a recession. The Chrysler Building and the Empire State Building were constructed during the start of the Great Depression. The current world’s tallest building, the Burj Khalifa in Dubai, was built during the Great Recession. The world’s second-tallest building, Merdeka 118, is nearing completion in Kuala Lumpur, Malaysia. Many other tall buildings were recently completed or are in the middle of construction, including the Steinway Tower in NYC and several in Asia and the Middle East.

Other urban legends about recessions indicators include the hemline, men’s underwear, and lipstick indices.

Next, the Rule of 10 is predicting is flashing a recession. The Rule of 10 is a theory that the US economy contracts when gas prices plus mortgage interest rates are 10+. Gas prices are now averaging $5.00 per gallon in the US, and the 30-year mortgage rate is 5.23%.

On the other hand, the most accurate predictor of recessions is currently not signaling a recession. The yield curve is presently not inverted. As seen in the charts further below, the 3-month and 2-year Treasury rates are not less than the 10-year rate. That said, the rates were inverted briefly in March 2022 but rapidly bounced back. Inversion is a leading indicator suggesting a recession. In general, rate curve inversions precede a recession by seven to 24 months.

Final Thoughts on Is a Recession Coming

Whether a recession is coming or not is tough for an investor to ascertain. The economic and recession indicators seem to point to a slowdown even if a recession does not arrive immediately. The war in the Ukraine, widespread shutdowns in China and persistent inflation are not helping. It is important to note that the last three recessions were triggered by the dot-com crash, the sub-prime mortgage crisis, and COVID-19, not only by high inflation.

However, the US and global economy is absorbing much of the recent economic bad news and is still growing. Consumers are directly affected by high gas and food prices, but they do not seem to be driving or buying less. Americans saved nearly $2.7 trillion during the pandemic through the end of 2021, and they are spending it on travel, commuting, and eating out at restaurants. In addition, a robust stock market and record house prices through 2021 added to wealth and consumption. If consumers continue to spend, a recession may be short-lived, but if they pull back, it may be longer.

What is an investor to do? Long-term investors have been through multiple recessions, corrections, and bear markets. They know market volatility and economic contractions happen. If a recession is coming, most stay the course. That said, interest rates are likely going higher, and market volatility is probably with us for a while.