The further inversion of the yield curve – with the 10-2 year spread briefly inverting last week – has heightened fears that a recession is coming soon, but the real economy shows few signs of any imminent capitulation. Aside from industrial production, which is falling because of the manufacturing recession, the other three coincident indicators that the NBER uses to date economic cycle turning points are still trending higher. (See Chart 1.) Moreover, although the yield curve is the best single leading indicator of recessions two to three quarters ahead, none of the other key indicators – building permits, jobless claims and the stock market – show any sign of an economic contraction developing.
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