Advertisement
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".

Advertisement - Article continues below

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".

Advertisement
Advertisement

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 will the US central bank do next?
US Economy

What will the US central bank do next?

As the US continues to grapple with the Covid pandemic, the Federal Reserve will meet to decide what to do next on jobs, inflation and the recovery in…
28 Jul 2020
Is it time to buy Europe and sell the US?
European stockmarkets

Is it time to buy Europe and sell the US?

Europe is looking ever more attractive to investors, while the US is starting to look like the riskier bet, says John Stepek.
24 Jul 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”
Investment strategy

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”

Merryn talks to economist and author Andrew J Scott and discusses how we can profit from the "longevity dividend" as we live longer; why we need to re…
6 Aug 2020