Economic and Financial Resources

Ten Key Insights from the Q1 2023 Report: “What A Yield Curve Inversion Means for You”

1. According the closely monitored data, there is an 88% probability that a recession is coming.
2. Expected decline throughout 2024.
3. Three main tailwinds – reshoring, backlogs, and a solid consumer balance sheet – will keep the recession relatively mild.
4. It will be especially important to understand the degree to which your business will (or will not) be impacted by a macroeconomic recession. Use the forecasts in this report to help.
5. Take this as an opportunity to upgrade your talent pool in preparation for recovery and rise starting in 2025.
6. In spite of this, the labor market and consumer balance sheets look very strong, offering upside risk.
7. What can you do amid the uncertainty? First and foremost, make a plan and work the plan.
8. Get your employees excited and focused on implementing those plans; but be ready to adjust your plans as things develop.
9. Monitor your cash flow more carefully than before.
10. Lastly, lead with confidence and be opportunistic. Your competitors may go into panic mode. Do not follow them there.

Report Summary Excerpt:

“Rain or shine, we constantly monitor our system of leading indicators for signs of improvement or
deterioration. In the last quarter, we’ve seen broad-based weakness, coupled with a new signal: short-term interest rates, as measured by 3-month Treasury yields, are now higher than long-term interest rates, as measured by 10-year Treasury yields. This so-called “inverted yield curve” signals an 88% probability that recession is coming for US Industrial Production; the Federal Reserve has raised short-term interest rates too far, too fast.

We lowered our annual average US Industrial Production forecast by a slim 0.4% for 2023. Instead of the mild growth (+1.6%) previously forecast, we now expect activity to be virtually flat for 2023 (+0.1%) relative to 2022, with decline developing late in the year. 2024 is impacted more significantly. Prior to the extremely sharp and fast rate hikes by the Fed, we had been expecting growth for 2024. Now we expect decline to extend throughout 2024, with the year coming in 2.3% below the 2023 average, as it typically takes just over a year for yield curve inversions to translate to recession.”