Features

US data and yield curve spook investors

American manufacturing is shrinking for the first time in three years. But what has spooked markets the most is the recent inversion in yield curves.

A welder © STR/AFP/Getty Images
US manufacturing is shrinking for the first time in three years

Conflicting data from the US economy has left economists scratching their heads, says Irwin Stelzer in The Sunday Times. But most shoppers seem to have shrugged off talk of a recession so far. That bodes well, given consumer spending accounts for about 70% of economic activity.

The monthly US non-farm payrolls data is seen as a key barometer. Some 130,000 jobs were created in August, fewer than expected and also less than the average of 200,000 per month seen earlier in this cycle. Alarmingly, the ISM manufacturing index also fell below 50 in August, which suggests that American manufacturing is shrinking for the first time in three years. Yet other figures show that wage growth has sped up and that the service sector remains robust. Most hard data has yet to show signs of impending recession, says Paul Ashworth of Capital Economics. What has spooked markets is the recent inversion in yield curves. Indeed, the ten-year and three-month Treasury yields have "never been [this] inverted... without a recession starting within the following 12 to 18 months".

Last week did see the spread between the two-year and ten-year treasury uninvert, but that is little reason for cheer. Data shows that previous inversions have predicted a recession over the coming 24 months regardless of whether the curve has uninverted by the time the recession actually arrives.

The start of September has seen American stocks rally, says Akane Otani in The Wall Street Journal. The S&P 500 is up 19% this year so far and is back within 2% of July's all-time high. Yet psychological factors may be curbing risk appetites. In addition to the trade and yield curve gloom, many money managers remember that last year the S&P peaked in late September "only to slump by a fifth in three months".

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
What the race for the White House means for your money
US election

What the race for the White House means for your money

American voters are about to decide whether Donald Trump or Joe Biden will take the oath of office on 20 January. Matthew Partridge explains how vario…
15 Oct 2020
The riskiest election in US history
US election

The riskiest election in US history

Donald Trump’s illness has rattled markets as investors try to understand the implications of an incapacitated American president or a bitterly contes…
8 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
What would negative interest rates mean for your money?
UK Economy

What would negative interest rates mean for your money?

There has been much talk of the Bank of England introducing negative interest rates. John Stepek explains why they might do that, and what it would me…
15 Oct 2020
Last chance to secure a Bounce Back loan for your small business
Small business

Last chance to secure a Bounce Back loan for your small business

The government’s Bounce Back loan scheme will only run for another six weeks. Act now if you need to take advantage of it.
16 Oct 2020