U.S. Economy: Anatomy of a Recession

We look at the difference between yields for 10-Year Treasury Bonds and 3-Month Treasury Bills, which can be expressed in terms of steepness. If the 10-Year yields 3.0% and the 3-Month 1.5%, the yield curve would be +1.5% steep.A steeper yield curve shows bond investors are optimistic about economic prospects, while a flatter or inverted yield curve shows bond investors are worried.

Data source: Federal Reserve and Bloomberg

A credit spread is the difference in yield between two bonds of similar maturity but different credit quality. When investors get more worried about risk, they require greater compensation in the form of higher returns. Credit spreads are one way of looking at the return investors require in fixed income markets. A jump in credit spreads signals investors may be worried companies cannot repay their bonds, which becomes tougher during a recession.

Data source: Bloomberg/Barclays and Bloomberg

When the Fed (Federal Reserve) eases policy, they increase the supply of money in the system (more dollars available) to help boost growth. However, when things get "too good," they often reign the money supply in a bit to help keep the economy from overheating.

Data source: Federal Reserve and Bloomberg

Higher wages allow consumers to spend more, potentially bidding up the prices of goods and services. Additionally, when companies raise salaries, they may pass along the cost in the form of higher prices to maintain margins. As a result, wage growth is closely tied inflation.

Data source: BLS and Bloomberg

Companies generally pass along higher commodity prices to consumers (for example, fuel surcharges). However, when there is less demand for finished products, firms need fewer raw materials, and prices fall. The ClearBridge Recession Risk dashboard evaluates a proprietary blend of commodities that focuses on industrial chemicals as well as copper, steel, lumber, and oil. Higher oil is a negative for this indicator, while higher prices are positive for the other commodities.

Data source: ACA, NYMEX, EIA, CMX, BLS, and Bloomberg

When times are tough, individuals hold off on buying new homes, making do with their existing residences. As a result, housing-related indicators provide important signals towards the health of the economy and consumer. Our dashboard evaluates permits for new homes, which provide additional lead time over “shovels in the ground” metrics.

Data source: Census Bureau and Bloomberg

When workers lose their job, they have to cut back on spending. By looking at how many people are filing for unemployment, we can get a sense of future spending patterns.

Data source: Department of Labor and Bloomberg

Consumption is the largest piece of GDP (gross domestic product). This measure looks at a wide array of purchases on big and small ticket items, both online and in-store to track consumer activity.

Data source: Census Bureau and Bloomberg

Individuals who have brighter outlooks about the labor market are more likely to feel confident spending more, while those fearful about losing a job are likely to cut back on expenditures. As a result, we look at jobs sentiment, which is a survey that measure this.

Data source: Conference Board and Bloomberg