10 Macro Indicators that point to no Recession

In a recent research note David Rosenberg of Gluskin Sheff checks in on 10 of his favorite macro recession indicators.  His conclusion – based on this there is a 0% chance of a recession at present:

1.  Inverted yield curve – despite the decline in bond yields, the spread between the 10 year US T-note and the three month T-bill is 244 points.

2.  Morgan Stanley Cyclical Stock Index down more than 10% – the index closed at a record high on Monday and is up 4.9% year to date.

3.  Bond yield rally of at least 135 basis points – the 10 year T-note yield has fallen 56 bps from the recent peak of 3.04% hit at the end of December.

4.   Commodity prices down 5-10% – the CRB spot commodity price index is just off a two year high hit in May and is up 9.3% year to date.

5.  High yield corporate bond spreads widen out 350 bps or more – spreads have continued to narrow and currently sit at almost seven year lows.

6.  ISM below 50 for at least on month – the ISM manufacturing index just ticked up to its highest level so far in 2014 at 55.4 in May.

7.  Initial jobless claims (four week moving average) up 75K – the four week moving average of initial claims fell to 311,500 in the week of May 24th, the lowest level since August 2007.

8.  Relative strength of the S&P Financials down at least 20% – the ratio of S&P financials to the S&P 500 is down 2% year to date and down 6% from the recent peak from last July.

9.  ECRI smoothed index of -5 or worse – the index was +5.3 for the week of May 23rd.

10.  20 point decline in University of Michigan consumer sentiment – the gauge of consumer confidence fell 2.2 points in May from April’s nine month high and is 3.2 points below the post-recession high hit last July.


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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • LVG

    I really enjoy Rosenberg’s work, but he lost a lot of credibility in 2009/10 when he stayed bearish for so long. Also, hasn’t he turned into a bond bear right before they rallied 10% this year?

  • Anonymousone

    I’d put rosie’s analysis alongside kleintop’s “what thoroughbred prices say about risk”.

  • The Other Matt

    It’s really hard to make any macro call these days when obviously the Fed and CBs of the world appear to have control, whether just psychological, have the markets.

    For anyone to make a call based on the “old rules” without a major acknowledgment to QE and now negative deposit rates by the ECB is suspect.

  • Andrea Malagoli

    Maybe this is a sign that the market is about to correct — lol.

  • Poseidon’s Bear



    Shocks: drought in California, no progress on oil independence

  • Poseidon’s Bear
  • jt26

    Cullen, I’m actually a bit surprised in his top 10 list that he has a junk indicator like ECRI, but does not have a transport-related indicator (DJ transports, or shipping/trucking, or truck shipments or …).

  • Anonymousone

    There’s no recession, it’s an easy call. Interesting final note in your link, “the Bureau of Labor Statistics shows that there are now 118 metro areas with unemployment rates below 5.0%” in stark contrast to the dim scenario bonds are pricing. I’m sure theoreticians have an explanation but there’s something odd that the bonds are at recessionary prices. Maybe it’s no fed hikes this year, the new normal, or maybe just old fashioned everyday libor-like pricing.

  • WeTodd

    “Inverted yield curve – despite the decline in bond yields, the spread between the 10 year US T-note and the three month T-bill is 244 points.”


    An inverted yield curve right now would be virtually impossible. Maybe a partially inverted curve could conceivably be possible but not an inverted yield curve.

  • Geoff

    Yes, it would be rather difficult for the 10yr yield to drop below the 3 month T-bill yield, which is now basically at zero. ;)

    He should have used some other definition of the yield curve, like the 2-10’s or 5-10’s.

  • VK

    I think every recession in the US has been preceded by an inverted yield curve and whenever there has been an inverted yield curve there has been a recession. What he is saying is exactly what you are saying that we are very far from an inverted yield curve.

  • Johnny Evers

    Only one of those 10 numbers has anything to do with the economy as people experience it. Most of them are indicators for the prices of financial assets.

  • Bond Vigilante

    Rosenberg does some fine analysis but he has lost A LOT OF credibility. It has been smoking something VERY illegal because he sees a number of thing I don’t see:
    – Inverted yield curve ? The yield curve has continued to flatten since april of 2013 (a good thing) but inverted yield curve ? No way !!!

  • J Thomas

    Only one of those 10 numbers has anything to do with the economy as people experience it. Most of them are indicators for the prices of financial assets.

    There was an old saying that went “A recession is when you lose your job. A depression is when I lose *my* job.”.

    Maybe the updated version could go something like “When unemployment is up 20% that’s a troubling warning sign. When the prices of my financial assets go down, that’s a recession.”.

  • J Thomas
  • Anonymousone

    The overall work force is a possible reason but many boomers too. Looking at various job sites there are plenty of individuals working (particularly construction). Is there no discounting of improving fundamentals? At one time 5% was considered full employment.

  • J Thomas

    The official unemployment rate probably doesn’t tell you much that you’d want to know. Official unemployment is about who is eligible for unemployment benefits.

    The number of new unemployed says something you might care about. When a lot of people are getting fired, some businesses are shrinking.

    Labor participation tells you something else. It is contaminated by people who choose to take early retirement because they want to enjoy their leisure, and by rich people.

    If five million techies sell their internet companies and retire for life, that will drive labor participation down. But I don’t think that’s the major thing happening here.

    It’s gone from 66% to 63% since 2008, in pretty much a straight line, and there’s no indication it’s slowing down. That’s 3% of the working-age population that was bringing in money before and isn’t now. And generally the people who were working in 2008 and aren’t now, tended to be paid more than the ones who’ve gotten jobs since.

    It’s only one piece of the puzzle, but it’s a more useful piece than official unemployment. When a lot of people choose not to work because their families can do just fine with only one person working, that will be a positive sign for the economy. We aren’t there yet.

  • Anonymousone

    From the cross section of the country I see there seem to be reasonable opportunities for all skill sets. Much improved employment for labor, recent graduates and professional level. Continuing claims look good and with the exception of HP, layoffs have improved. Undisputed equity market message is that we’ve gained economic traction but the often described prescient bond market seems to always encounter the ghost of Christmas past.

  • Andrew P

    OK. No indicators point toward a recession. The real question is how quickly can things change and how much warning (if any) will there be? Especially if the proximate cause of a recession is outside the USA. As I recall, when things went south in 2000 they went pretty fast once the downturn was obvious, and in 2008 they went much faster once the slide was apparent to everyone. If the pattern holds, the next one will drop like a rock falling into the Grand Canyon once the downturn is obvious in current data. It could go so fast that no one will get out.

  • Andrew P

    The yield curve cannot invert with short rates held at zero, unless the long rates actually go negative. This is currently inconceivable, although it is theoretically possible if we get into an environment where Central Banks make rates actually go negative (The ECB has taken a baby step in this direction), and the market anticipates that rates will go very very far negative in the future. In such an environment, if the market expects rates 10y from now will be at -20%, it could easily drive the 10y bond to -5% or less. Of course, this is only possible if the politicians are discussing (or implementing) a plan to eliminate physical cash (as Israel is doing today).

  • Andrew P

    The ECB has taken a baby step toward actual negative rates. If this catches on worldwide, it will become possible for the yield curve to invert when short rates are zero!!

  • Bond Vigilante

    - I don’t include short term rates because they are very close to zero. When I pull up the yield curve (e.g. 30y vs. 3 month or 10y vs. 3 month) then I get something hallucinating.

    I look at the 30y vs. the 5y and that’s a more credible gauge. I can pull it up from Stockcharts. The yield curve seems to be turning to steepening again. It tells that risk appetite seems to be waning.

    – There’s another thing Rosenberg doesn’t get.
    = The bond market is a LEADING indicator.
    = The stockmarket is a LAGGING indicator.
    Falling yields since january 2014 clearly sends a “recessionary” signal. NOT a good sign.

    – Commodity prices have been falling since mid 2011. Also a bad sign.
    – Credit spreads (High yield vs. T-bonds) have widened since january 2014. Another recession signal.

  • Quick Brown Fox

    Herbert Hoover once famously said, “There’s no panic. People are just depressed.” We know what happened next.