Issue link: http://psai.uberflip.com/i/1150295
W EEKLY EDITION JULY 31, 2019 Pr ep a r e N ow f or t he Up c om i n g R e c es s i on By Karleen Kos, PSAI Executive Director … continued from p age 1 In short, the Fed reduces interest rates when the economy needs a boost. Today's action is being taken because it is widely understood that the nation's longest period of economic expansion in history is slowing down. Already there are important signs of coming economic trouble: • The recession probability model, which predicts the likelihood of a US recession in the next 12 months, delivered a reading of 32.9% for June. Every time the measure has exceeded 30% since 1960, a recession has followed within a year. The June reading was up from 28% in May, a sizable jump in a short period. • An inverted yield curve on US Treasury bills is usually a sign of upcoming financial problems because it means investors have less confidence in the longer term economy. Since May, the thr ee - month Treasury bill (with a shorter maturity) has a higher yield than the 10 - year Treasury note (a longer maturity). In fact, the difference between the two — called the "negative spread" — is at its widest point to date, and that makes people who worry about money very nervous. • Although confidence in the economy is still high, the most recent consumer confidence index — released in June 2019 and every month — dropped to a two - year low. While hardly an indication that the average person is in despair, i t does indicate that people are becoming more cautious in their spending. • Meanwhile, business confidence and manufacturing has also dropped. The Purchasing Managers' Index currently indicates a significant slowdown is expected in US manufacturing activit y. It is still better than Europe's outlook, but the trend is negative and cannot be ignored. The U.S. automotive sector has experienced slowing sales in recent months, and orders for non - defense capital goods (not including aircraft) fell 0.9% in April — mo re than expected by experts. According to a Reuters report in May, factory activity dropped to near 10 - year lows, sparking fresh concern and reduced estimates of GDP for 2019. • Trade tensions and a poor growing year in agriculture are also weighing down t he US economic outlook. Whether and how they will be resolved will either mitigate the overall picture or make it worse. P AGE 7 CONTINUED ON PAGE 8