IN THIS ISSUE:

1. US Manufacturing Sector Officially in Contraction Mode
2. Strong Consumer Spending Continues to Drive Economy
3. Is the Treasury Yield Curve Really Inverted? It Depends
4. Fed Cut Rates a Second Time to Fight Yield Curve Inversion

Overview

As regular readers know, I have been very positive about the economy in recent years, unlike many financial writers who have been predicting a recession for the last two years or longer – the so-called “PermaBears.” While I still don’t believe a recession is headed our way anytime soon, a key economic indicator just signaled that the manufacturing sector is contracting.

This indicator has signaled contraction prior to each recession over the last 50+ years, so we have to take it seriously. That’s especially true in light of the continued inverted yield curve which has also preceded each recession going back decades. While I don’t see a recession just ahead, the pendulum appears to be slowly swinging in that direction, as we’ll discuss today.

Yet as I have written recently, US consumers are not buying the left’s narrative that the economy is headed for a recession, and they continue to increase spending and consumption. Until that changes, the US economy should continue to roll.

The Fed cut interest rates a second time last week as was widely expected. I continue to believe the Fed is doing this because of the inverted yield curve, which as we’ll se below has happened prior to each of the last seven recessions.