In a recent research note David Rosenberg of Gluskin Sheff checks in on 10 of his favorite macro recession indicators. His conclusion – based on this there is a 0% chance of a recession at present:
1. Inverted yield curve – despite the decline in bond yields, the spread between the 10 year US T-note and the three month T-bill is 244 points.
2. Morgan Stanley Cyclical Stock Index down more than 10% – the index closed at a record high on Monday and is up 4.9% year to date.
3. Bond yield rally of at least 135 basis points – the 10 year T-note yield has fallen 56 bps from the recent peak of 3.04% hit at the end of December.
4. Commodity prices down 5-10% – the CRB spot commodity price index is just off a two year high hit in May and is up 9.3% year to date.
5. High yield corporate bond spreads widen out 350 bps or more – spreads have continued to narrow and currently sit at almost seven year lows.
6. ISM below 50 for at least on month – the ISM manufacturing index just ticked up to its highest level so far in 2014 at 55.4 in May.
7. Initial jobless claims (four week moving average) up 75K – the four week moving average of initial claims fell to 311,500 in the week of May 24th, the lowest level since August 2007.
8. Relative strength of the S&P Financials down at least 20% – the ratio of S&P financials to the S&P 500 is down 2% year to date and down 6% from the recent peak from last July.
9. ECRI smoothed index of -5 or worse – the index was +5.3 for the week of May 23rd.
10. 20 point decline in University of Michigan consumer sentiment – the gauge of consumer confidence fell 2.2 points in May from April’s nine month high and is 3.2 points below the post-recession high hit last July.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.