We all should think about what’s coming in the economy in order to be able to tighten up our finances and safeguard the home front, and there is an advantage in understanding when to tighten our budgetary belts. What do the economic stats tell us?
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Statistics are more reliable indicators of coming economic change than political utterances. We are entering the silly season yet again, so The Bureau of Labor Statistics (BLS) just released a report stating that American businesses are changing their workforce. They are moving to more part-tim (PT) and fewer full-time (FT) workers. There are about 450,000 more part-time workers who want full-time work. There are now 4.2 million involuntary part-time workers. That’s a 12% increase from the prior month.
A marked increase in involuntary part-time workers has accurately predicted a recession or economic downturn in the past. One stat is indicative, but all data needs corroboration. So, are there other things pointing in one direction or the other?
Now let’s talk inverted yield curve. That may not be what you discuss over the breakfast table. What is an inverted yield curve?
Well, when the U.S. government sells its debt to investors, it promises to repay the debt in either the short term, less than a year, or the long term, greater than a year. Short-term debt usually carries a lower interest rate than long-term debt.
There is a reason for this behavior. Longer-term debt means the money is tied up for a long time. There is always a risk your money will lose value over time from inflation. So long-term debt has to build in this inflation risk into the interest rate where, in the short term, this is less of a concern.
So, back to the inverted yield curve; what has happened is, short term interest rates are higher than long-term interest rates. When this happens, it too is an indicator a recession is coming. That has been true every time going back to 1978. The recession tends to hit about 15 months after yield inversion. Two indicators are a stronger indication than one.
Is there anything else out there we can and should look at? Well, yes. Yes, there is. The Federal Reserve is reporting rising credit card debt and depletion of savings. The pandemic stimulus money is gone, out of the economy. A lot of us have less financial cushion if a recession comes.
We are getting mixed economic signals. There are storm clouds. Clouds don’t always bring rain. But it is a good idea to note when there are storm clouds as we decide whether to bring an umbrella if we are going out. Just saying, don’t get caught in the rain without your umbrella.
