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the economic data has gotten a little bit better yet I still think when we put it all together when we look at all of our indicators for recession it seems that there is an increasing probability of recession before the 2020 election obviously the yield curve being flat and even inverted from fen fuds at least at this moment out through the curve you know that's clearly something that is a form of precursor of potential recession what you hear a lot in financial media is after the curve inverts and media likes to focus on the twos 10 spread I'm not sure why exactly but it seems like when the 210 spread goes negative even by a tiny amount in the US Treasury market you start to hear all these is this a recession signal but the way history kind of has proved to work is that when the curve inverts for the first time and I really look at not twos tens but we can look at that if you want I look at the Fed Funds rate out to the tenure of the thirty-year what happens historically is the curve inverts well before a recession and I've heard many guests on CNBC over the past several months point out this fact correctly that the curve inverts well in advance of the front edge of the recession what people don't understand is that when the recession is getting to be close to your doorstep the curve actually steepens out because the Fed gets the joke finally that they're behind the curve and they need to cut interest rate or we mention that you get if you get in a rate cut cycle it could steep in it it would steep in the curve sure absolutely and that's what's happened historically and and when the curve steepens out with the Fed cutting a lot of people say oh this is a sigh of relief it shows that you know the feds on the case and recession could be averted but historically that hasn't been true what happens is once the curve starts deepening out recessions getting closer and closer the indicator for recession that to me is the most compelling in terms of watching and being concerned about is consumer sentiment comparing how consumers the United States feel about the present contrasted to how they feel about the future what happens before recessions every time in a very convincing a pattern is that first consumers start to feel bad about the future they say the future looks worse than how I feel about the presence and that started quite a while ago now where the view of the future was much grimmer than the view of today that puts you on kind of a notice just like the yield curve inverting that maybe you're supposed to be on recession wash but that what happens is the consumer continues to be pessimistic about the future but then their attitudes about the present start to deteriorate and that has started to happen particularly in Europe but also the United States to a more minor but not insignificant degree consumers view of the present is starting to deteriorate pretty rapidly and the view of the future continues to be pretty grim and this is really a very common sign of the consumer maybe being poised to pull back we did we haven't really seen that yet so much no we haven't that day given the data again today suggests otherwise yeah that's right but consumer spending a rare consumer attitudes and consumer spending are notorious for being very strong right at the last minute before a recession it's the consumer ideas about how things are going to collapse the last so CEO confidence has started to deteriorate noticeably with new orders really in a freefall we've seen manufacturing not doing well Nestle production came out higher than expected yesterday but it's still declined on a year-over-year basis because the number that rolled off from a year ago was even higher than last time so there are some indications I mean the is a manufacturing is below 50 that's not a good sign so it's much more of a mixed bag some of the times when we've talked in the past we talked about how there's really was no compelling case that a recession might come within the next 12 months but now even the New York Fed's model which is incredibly simplistic it just uses the shape of the yield curve it has recession probabilities in the next 12 months about the same as the probabilities that preceded each of the three recessions of significance since 1985 you
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