The first recession of the 2000s was March of 2001 through November of 2001. The inversion was February of 2000 though December of 2000. The inversion was over before the recession started. The worst of the inversion was May 2000 when the 10 year was 6.44% and the 2 year was 6.81%. The inversion started 13 months prior to the recession.
The Jobs Recession was February 2001 through February 2002. It was unfortunate for Al Gore and Former President Clinton that the GDP recession was still on-going during November 2000. There were 135.577 million jobs during February of 2001. There were 135.443 million jobs during February 2002. There were more jobs March 2002 than March 2001.
The Media is touting the 2 year 10 year rate inversion as a predictor of a recession
The Margin of Error is Significant.
This column has produced two prior articles regarding the "impeding" recession. The first article "Government Shutdown May not Show up in the Government Data" explained that due to the timing of the shutdown, roughly between the Jobs Report collection dates for December and January, that the impact would be minimal. It was thought that most people would buy Christmas and Hanukkah Presents, most people would still go on vacations, and eat out during the Holiday Season. It wasn't titled"Government Shutdown Will Not Show up in the Government Data." May not, Big Difference. The second article was "Will This be the First Media Created Recession?" The reports are saying one thing, the interpretations of the reports, and the data is saying another thing. Now the narrative is that the "Rate Inversion has predicted each of the recent recession." preceded, maybe. Predicted, no. It is more likely that a jobs recession will precede a rate inversion.
The first recession of the 1980s was January 1980 through July 1980. The rate inversion that preceded this recession was September 1978 through May 1980. The inversion started fifteen months before the recession and ended two months prior to the end of the recession. The spread between 14.88% and 12.75% for the 2 year and the ten year, respectively.
The Jobs Recession was June 1979 through July 1980. There were fewer people working during June of 1980 than June of 1979. There were fewer people working July of 1980 than during July 1979.
The second recession of the 1980s was July 1981 through October of 1982. The Rate Inversion was October 1980 through October of 1981, This means that the inversion was just nine months prior to the second recession. The largest spread was during September 1981 when the 2-year was 16.46% and the 10-year was 15.32%.
The Jobs Recession was June 1981 through June 1983. There were 101.4 million job during June 1981 and 101.8 million jobs during June 1983. It took two years to recover the lost jobs. This means that there was strong overlap between the jobs recession and the GDP recession
The Great Recession was officially from December 2007 through June 2009. The inversion was June 2006 through June 2007. This recession was 18 months compared to Reagan's first recession of fifteen months. This inversion was over before the recession started. The inversion lasted from June 2006 through May 2007,The worst of the inversion was February 2007 when the 10 year was 4.72% and the 2 year was 4.85%. The inversion started 18 months prior to the recession.
The Jobs Recession was July 2007 through July 2014. It took until August of 2014 to have more total jobs than we had during August of 2007. The July 2007 level of jobs was 147.315 million and 147.265 million during July 2014. The August values were 146.406 million and 146.647 million. The January 2015 level would drop to 146.552, lower than it was during July 2007. This column has discussed how the Full-time CPS levels did not exceed the July 2007 level, and stay there, until February of 2018. The mix of Jobs prior to February 2018 included more part-time jobs than were present during July 2007.
Rate Inversions do precede official recessions, but... The thing is that Jobs Recessions precede recessions by a narrower margin. Another way to look at it is the rate inversion has a longer lead time and more variability the majority of the time.
It is also important to note the size of the gap between the 2 year and 10 year rates. We started May 1980 with a maximum gap of 2.13%. This gap was 1.14% during September of 1981, 0.32% during March of 1989, 0.40% during August of 2000 and just 0.07% during February 2007.
Does the length of the inversion impact the data? The inversion last 18 months during the 2007-09 recession. The June 1990 recession had a length of 17 months. The 1980 recession had an inversion of 15 months.
It is clear that the jobs recession is, for now, an annual duration or a multiple thereof. The jobs recessions of 1978, 1980, and 2000 were basically "only" a year long. The 1980 recession was promptly followed by the recession of 1981. The jobs recession of 1990-1992 last 24 months. The Jobs recession of 2007-2014 lasted 84 months. It is also apparent that he jobs recession takes longer to escape, as the Jobs recessions extend past the official recession dates.
Does the rate inversion cause uncertainty and force people to not hire as many people as they did the prior year? It is possible. Recessions tend to start either during June or July and December or January. These would coincide, in general, with quarterly reports.
The only recession of the 1990s was July 1990 through July 1991. The inversion was February of 1989 through June of 1989.The spread was 9.68% for the 2 year and 9.36% for the 10-year. The inversion was seventeen months before the recession and was finished before the start of the recession.
The Jobs Recession was July 1990 through July 1992. There were 120.802 million people working during July of 1990 and 120.744 million jobs during July 1992. There were more workers August of 1992 than August of 1990.
The Recession of 1970 was barley a recession, based on the Job Recession data. There were more workers November of 1969 than November 1970. There were more jobs January 1971 than during January 1970. It was only December of 1969 that had fewer jobs than December 1970. There were 78.789 million jobs during December 1969 and 78.651 jobs during December 1970. The dip is negligible. What is interesting is the drop in the ten year rate.
Inversion - What Inversion? The data used here for the 10 year and 2 year rate are monthly readings. These are not the weekly, daily, or hourly readings that were leaving people breathless for the past few months. The shortest inversion is ten months. We are currently at zero months. We are 8-17 months out from a jobs Recession, at the minimum, once an inversion happens. We are 9-18 months out from the start of an official recession, once the inversion happens. The inversion, statistically, has not happened. The July 2019 gap was a positive with the ten year at 2.06% and the two year at 1.84%.
Yields are negative in Europe. If you could invest you money at 2.0% in the United States or -0.5% which would you choose? This is not a trick question. When people or institutions buy bonds they drive up the price and drive down the yield. The overall trend since the early 1980s is that he 10-year bond and 2 year bond have been in decline. Sometimes there is a large variation as we had during the early 1990s and early 200s, even as recently as 2009-2014.
Do yield inversions precede recessions? Yes. Are they a consistent predictor? Not really. Correlation is not causation. Twelve months plus or minus four months is a fairly wide margin of error, especially considering that the yield curve had not inverted as of the end of July. Will it be inverted at the end of August? September? Will it remain inverted for nine to eighteen months? It hasn't inverted for one month as of yet. How can we project out a year or more? This column started by referencing other . This could be the first Media Created Recession - when it happens - if it happens. Year over year expansion should continue for at least one more year - possibly eighteen months or longer.
It's the Economy.
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