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

US inflation is rising – but it’s not enough to rattle markets yet
Inflation

US inflation is rising – but it’s not enough to rattle markets yet

The latest US inflation figures showed that consumer prices are rising more rapidly than expected. But markets shrugged. John Stepek asks why, and wha…
14 Apr 2021
Why all eyes will be on US inflation data this week
Inflation

Why all eyes will be on US inflation data this week

As the world comes out of lockdown and demand for goods and services rises, attention will shift to inflation and what it means for interest rates. Th…
12 Apr 2021
What will Joe Biden’s “build back better” plan mean for markets?
US Economy

What will Joe Biden’s “build back better” plan mean for markets?

Joe Biden recently proposed a $2trn “build back better” stimulus plan for America – on top of the $1.9trn he announced earlier this year. Saloni Sarda…
6 Apr 2021
What does Joe Biden’s $3trn infrastructure plan mean for your money?
US Economy

What does Joe Biden’s $3trn infrastructure plan mean for your money?

Joe Biden is set to announce a further $3trn of public stimulus in the US. Saloni Sardana looks at what’s on the table, and what effect it could have …
30 Mar 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Properties for sale for around £400,000
Houses for sale

Properties for sale for around £400,000

From a converted church in Banffshire with views towards the Cairngorms National Park, to a period property in the Georgian market town of Beverley, e…
2 Apr 2021