I discuss the top 10 recession signs of a weakening US economy in 2022.
The increasing amount of recession signals is stemming from the Federal Reserve having to raise interest rates (Fed Funds Rate) in order to combat the highest inflation we’ve seen in 40 years. CPI Inflation just hit 9.1% in June 2022!
A byproduct of The Fed’s quantitative tightening (QT) is slowing economic growth, which means there are clear signs that the US economy is weakening despite a few bright spots of a low 3.6% unemployment rate and strong-ish consumer spending.
But even consumer spending is showing signs of slowing down and it’s a big deal when Americans don’t feel like spending money because it makes up 70% of US GDP, which is worth $24.4T currently.
If you’ve seen my videos before, you probably know that sometimes I talk about macroeconomic and recession signs because I find this topic to be super fascinating and I like being prepared for what could be a slow-moving train wreck of a potential recession.
As I talked about in this video, The Fed and economists are predicting a recession by early 2023 based on their projections of the Fed Funds Rate, unemployment rate, and inflation.
Aside from high inflation, it looks like economic conditions of the pandemic recovery were as good as they were going to get. With QT depressing borrowing and pumping the brakes on the economy, most likely unemployment will go up from here as the economy slows into a much-needed recession to reset debt and asset values.
While inflation isn’t necessarily causal of a recession, it’s linked with a bunch of factors that have downstream effects on the overall health of the economy. So I discuss the signs in order of lowest market value size to highest market value size since presumably the factors that have the biggest market value have the most impact on the economy. I hope these signs make sense as general observations.
10. Copper market somewhere over $200B
9. $329.5B Startup investments in 2021
8. $1.7T Global oil reserve volume (oil & gas)
7. $10T Corporate bond debt: Corporate Bond Market Distress Index (CMDI)
6. $14.5T US Consumer Spending and $6.6T US Retail Sales 2021
5. $30.5T Market Value of US Government Debt (Marketable Treasury Debt: 22.5T)
4. $32T S&P 500 representing the US Stock Market (used to be $40T in January 2022)
3. $33.6T US Housing Market
2. $46T for the US market debt outstanding
1. Inflation-related indicators
For decades, the US government debt’s inverted yield curve of treasury bonds has been one of the most ominous and reliable predictors of an upcoming recession. Its track record is still going strong as it happened in 2019 before the pandemic recession.
While the more favored 3M & 10Y treasury bond yield curve hasn’t inverted, the one that the media cites most often is the 2Y & 10Y treasury bond, which has inverted a few times in 2022 already: on March 31 and June 13 briefly.
The 2Y & 10Y treasury bond yield curve been staying inverted since July 6, and had one of its widest spreads on July 11, 2022 between the 2 year and 10 year treasury bonds of -.08%, where you got paid more for the 2 year bond than the 10 year bond, which should not usually happen.
Since inflation has an all-encompassing effect on the economy, there are some inflation-related signs that professional money managers are using to position their portfolios. Two of them include the 10 year breakeven inflation rate and the 5 year, 5 year forward inflation expectation rate. These rates had peaked in April 2022 and have been declining, suggesting not only that investors expect inflation rates to normalize to 2-3% but that there will be a downturn.
While a lot of people currently discount the risks of corporate debt, and based on the CMDI it looks comparable to August 2007 levels, to me this could end up being a black swan that’s still hidden for now. As investor Howard Marks said, “the worst of loans are made in the best of times.” So we’ll see what happens!
If you’d like to get prepared for a recession & bear market, feel free to check out my recession checklist video.
What’s your favorite recession sign? Let me know in the video comments!
If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.
I look forward to making more investor friends! Add me on Instagram: michellemarki