US yield inversion signals recession within 1-2 years

Subject

Predicting recessions.

Significance

Provided the economy grows for the first six months, this run of US GDP growth will be more than ten years old in June, marking its longest expansion. The previous longest lasted exactly ten years (March 1991-March 2001), far longer than the average five-year expansion since the Second World War. The flattening of the yield curve last year raised concerns, as an inverted yield curve has predicted every recession since the late 1960s. Many economists including Harvard University’s Larry Summers see a recession as more likely than not in the next two years.

Impacts

• Despite improved computing speeds and econometric techniques, there is little evidence that economists are better at forecasting recessions.
• The NBER committee that officially declares recessions is largely immune to partisan influence, judging by its record.
• Lower growth in coming decades than in the past may make it trickier for economists to distinguish between low growth and a contraction.