Recession Signals: The Yield Curve vs. Unemployment Rate Troughs

Abstract

In early May 2018, The Wall Street Journal asked professional forecasters to predict when the next recession would begin. Nearly 6 in 10 answered that the next recession will begin sometime in 2020. If so, the current business expansion will have eclipsed the 1991-2001 expansion as the longest on record. Economists and policymakers look at several leading indicators when attempting to predict a slowdown or outright contraction in economic activity. Two stand out: the slope of the yield curve and the direction of the unemployment rate. The purpose of this essay is to ascertain the predictive power of these two economic indicators.