Another 2024 Recession Red Flag Has Been Raised

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Though the recent recession panic in August was determined to be a bit of an exaggeration when the economy did not collapse the next day, another recession red flag just got raised. It’s still not time to panic yet, but understanding the situation and remaining cautious is the best way to prepare your business. Here’s the rundown.

This warning sign relates to the US Treasury yield. For a couple years now, the yield curve has been “inverted”, with the 2-year yield trading higher than the 10-year yield. This happens when investors are less confident in the short-term than the long-term. Typically, the curve is the other way around, hence the “inverted” trend. In recent weeks, the 2-year yield began trading lower than the 10-year. In other words, the curve is normalizing.

However, the reason this is a red flag is because of the tendency for the curve to uninvert itself just before a recession kicks off. An example of this is when back in 2000, the same scenario took place, and a recession promptly occurred in 2001. The difference in our current situation 20 years later in 2024 is that we were in the inverted curve for so long. With the inverted curve persisting for two years, economists predict that a recession won’t be happening so soon after the curve normalizes.

Still, this doesn’t mean that a recession is completely off the table. Remember, the Sahm rule was triggered when July’s unemployment report showed a concerning lack of jobs created in the nation. While August’s report shows improvement, we’re not out of the woods yet.

But again, now is not the time to panic. This is the best moment for you to prepare your business. As you conduct regular operations, keep a close eye on your business’s numbers to assess your strength. Have access to cash in case business slows when a recession eventually comes around. Importantly, develop positive relationships with your customers and clients so you won’t be left out to dry if consumers start cutting down on spending. And make sure you stay updated on the latest business and economic news so you can continue to plan ahead. The XQ CPA blog will keep you updated with daily posts on the latest and greatest tax tips and business news.

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Sources:

https://www.cnn.com/2024/09/13/economy/inverted-treasury-yield-recession-indicator/index.html