- A recession in the US economy could materialize in the next few months, according to Ned Davis Research.
- The research firm highlighted that a recent surge in jobless claims is a big warning sign.
- These are the seven indicators that NDR is monitoring for a potentially imminent recession.
The clock is ticking on when a recession hits the US economy, and a downturn could arrive within the next few months, according to Ned Davis Research.
The research firm said in a Friday note that while some indicators point to a resilient economy, like the Atlanta Fed's GDPNow model forecasting GDP growth of 2.7% in the second-quarter, others are not as promising.
A surge in weekly jobless claims to 265,000 last week represents a big increase from recent levels and suggests that the economy is on a shaky foundation.
"We are probably not yet in recession, but I can see many signs warning me of the risk the clock is ticking toward one," Ned Davis Research founder Ned Davis said.
These are the seven indicators that suggest to Ned Davis Research that a recession could hit the economy within the next few months.
1. Inverted yield curve.
"The yield curve is one recession indicator that reflects the Fed's control over the short-term cost of money. This one has an average eight-month lead time after it gets inverted, meaning a recession is due around July of 2023 from when it went negative in November," Ned Davis said.
2. Decline in M2 money supply growth.
"The Fed controls the yield on cash, but it also drives the availability of money. The leads here are long and variable, but as shown on the chart, both from a 13- week rate-of-change in nominal M2 and a 12-month rate-of-change in real M2, money supply growth is deeply negative. I don't like to 'fight the Fed," Ned Davis said.
3. Decline in leading economic indicators
"The Leading Economic Indicators also suggest a recession should be starting now," Ned Davis said.
4. Leading Index suggests negative GDP growth.
"NDR has its own version of two different leading indicator composites on the chart at left, which has just now fallen enough to be consistent with negative GDP growth," Ned Davis said.
5. A 20% surge in unemployment claims.
"People say the jobs market is obviously red hot with just 3.4% unemployment. Yet, leading Insured unemployment claims have risen over 20% from a year ago....[The indicator] has been right on for recessions historically," Ned Davis said.
6. Employment trends are falling.
7. Banks are less willing to loan out money.
"Banks [are] tightening lending standards for consumer loans. We have found it consistent with a recession when it drops below -12, which it did in the first quarter. It is now -22.8," Ned Davis said.