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Recession Indicators Flashing Red: Just Look at the Business Inventories
A recession could be looming for the U.S. economy. 2019 could go in the books as the year when the U.S. economy slows down and faces severe headwinds.
To predict a recession, there are a few things economists generally look at.
For example, they look at business sentiment and business activities. If businesses are producing, it means they are expecting demand to increase, and economic growth could be ahead.
Right now, businesses in the U.S. economy aren’t that optimistic. This indicates that a slowdown could be ahead.
Look at the chart below. It plots the year-over-year change in total business inventories in the U.S.
(Source: “Total Business Inventories,” Federal Reserve Bank of St. Louis, last accessed November 16, 2018.)
Right after the previous recession, businesses in the U.S. started to pile up inventory.
Since early 2011, we continue to see their rate of inventory growth continue to take a hit. Inventories edged up slightly in 2017. But, since early 2018, the rate of growth has been stagnant.
At its core, this says businesses could be preparing for a recession.
Construction Spending Growth Slows 50%
Look at another chart. It plots the year-over-year change in construction spending in the U.S. economy.
When there’s a lot of construction spending, it’s a sign of optimism and growth. If it stalls, it’s worrisome.
(Source: “Total Construction Spending,” Federal Reserve Bank of St. Louis, last accessed November 15, 2018.)
The construction spending growth rate in the U.S. economy has stalled significantly. In early 2015, it was growing at around 15%. Now, it is below 7.5%. This represents a 50% deceleration in the growth rate. Not good at all.
Yield Curve Paints a Dire Economic Outlook for the U.S.
Beyond business inventories and construction spending, look at the yield curve as well. This is hands down one of the most widely used recession indicators by economists.
