Many economic trends don’t fit with patterns that presaged previous recessions although warning signs can be sudden

See Global Recession Alarms Aren’t Ringing, Despite Market Mayhem: Plenty could still go wrong for the global economy in 2019, but the economic data aren’t saying it has happened yet from Dec. 10 by Paul Hannon of The WSJ. Excerpts:

"Economists at UBS Securities examined 120 recessions in 40 different countries over the past 40 years for clues about how economies behave before recession sets in, for example, what happens to consumer spending, home prices, bank lending, imports, productivity and employment.

“We find that on several dimensions, the behaviour of the data over the last four quarters in the U.S., Eurozone and Japan is completely incongruous with any of the recessions that took place since 1980,” write Pierre Lafourcade and Arend Kapteyn of UBS.

Mr. Kapteyn, in an interview, said the model is consistent with a “sharp slowdown” in global growth, but not the end of the business cycle.

Productivity growth and consumer spending, for example, tend to slow before downturns set in. In the U.S., they’ve picked up. U.S. consumer spending, for example, was up 2.9% in October from a year earlier, adjusted for inflation. That’s better than the average of 2.4% over the past four years. Growth in worker productivity in the second and third quarters was among the best of the expansion."

"Economists at J.P. Morgan have drawn similar conclusions about the growth outlook. They built several alarm systems for impending recessions—one using only high frequency economic data and another including economic data and financial market behavior. The U.S. indicator using only economic data puts a 21% probability on a downturn in the next 12 months, up a bit in recent months but still below levels reached in 2016. The indicator that uses financial market behavior, such as stock price changes and changes in long-term Treasury bond yields, puts the probability at a much higher 36%.

Some economic indicators that presage downturns, such as the change in corporate profit margins, have improved this year rather than deteriorated, said Bruce Kasman, J.P. Morgan’s chief economist.

“We’re in a slowing, there’s no doubt about it, but it doesn’t feel like something fundamentally is breaking down in the underpinnings of the expansion,” Mr. Kasman said in an interview."

See also Recession Is Looming, or Not. Here’s How to Know: Early indicators signal concerns, though more credible ones still look good. But the economy can turn quickly from Dec. 27 by Justin Lahart of The WSJ. Excerpts:

"The early indicators of trouble, such as stock-market selloffs and surveys of sentiment, are imperfect forecasters of a recession."

"Early indicators have more credibility when several of them are flashing warning lights, which is true now.

Besides the stock-market turmoil, short-term Treasury yields are almost as high as long-term yields, closing in on a yield curve “inversion” that in the past has portended recession.

Corporate bond yield spreads over comparable Treasurys are climbing. Business sentiment is slipping, with nearly half of chief financial officers in a recent Duke University survey forecasting a recession by the end of next year."

"The flattening yield curve, for example, could be a result of bond buying by central banks.
But these indicators tend to reinforce one another"

"initial jobless claims, auto sales, industrial production and aggregate hours worked.

Of these, only auto sales, which have leveled off lately, provide any concern."

"Economists as a group may never correctly predict a recession, but the odds they place on one coming tend to rise in advance of a downturn."

"This month, economists surveyed by The Wall Street Journal put a 22% chance of a recession occurring over the next 12 months, compared with 14% a year earlier. Those odds would need to go higher before they amounted to a danger sign."

"Before the fall of 2007, recession indicators like jobless claims suggested nothing was seriously amiss, and then suddenly, they did."

See Inverted Yield Curve by Investopedia. Inverted Yield Curve