all recessions over the past 60 years. As of this past
December, single-family housing starts were at
836,000, which is about half the number of starts at
the 2004 peak before the Great Recession. Single-family housing starts have increased every year
since 2011, however.
■ ■ Purchasing Managers Index. Created by the
Institute for Supply Management, the PMI shows
the health of the manufacturing sector based on
new orders, inventory levels, production, supplier
deliveries and the employment environment. A PMI
of 50 indicates a balanced sentiment, while over 50
indicates an expansion and under 50 a contraction
in industry. As of this past December, the PMI was
at 60, and had been higher than 50 for 103 months.
■ ■Michigan Consumer Sentiment Index. This
index compiles phone interviews asking how consumers feel about the economy. This indicator has,
without fail, predicted every recession for the past
60 years. During 2017, the index was near 2004
highs, but below 1999 levels.
■ ■ Inverted yield curve. Normally, long-term notes
have a higher yield than short-term notes. If people
are no longer betting on the future being better
<< Canary continued from Page 134 “If the economy is actually OK right now,
when should mortgage professionals
than the present, however, those expectations can
create an inverted yield curve, which can be one
indicator of an upcoming recession.
Over the past year, the U.S. yield curve has been getting flatter — meaning the spread between short- and
long-term notes is still positive but it has been shrinking. That likely is the result, in part, of the Fed pushing
up short-term rates to better modulate growth, while
long-term yields have not budged much because
inflation has been subdued worldwide, despite strong
growth. In theory, however, the Fed’s recent efforts
to taper its $4.5 trillion asset portfolio should create
some upward pressure on long-term rates.
So, keep an eye on these proven indicators, but for
now get back to the business of financing homes and
helping clients realize their dreams. We could continue in this unprecedented slow recovery for years.
The next time you hear a client or colleague say: “Well,
it’s late in the market,” you will know the truth, and
maybe can capitalize on your new intelligence. ■
main indicators of an upcoming recession are inflation
and decreased consumer spending.
Currently, the U.S. economy has low inflation and
flat consumer spending. Unemployment is on the low
side, historically speaking, but there is no sign that
the job market is either overheating or slowing down.
The housing market is steady, even though prices are
increasing in many markets and inventories are tight.
Because of these factors, and a slow recovery over the
Indicators to monitor
past 100 months, the Fed cannot raise rates too fast or
quickly end quantitative easing and unwind its balance
sheet, which includes mortgage-backed securities as
well as bonds and other securities, for fear of ending
what has been a long but slow cycle of expansion.
So, if the economy is actually OK right now, when
should mortgage professionals get concerned? Well,
the exuberant bull market last year could be seen as a
sign that we are late in the cycle, but it also may be an
indicator that there has been an international flight to
U.S. markets for stability, and a sign there is still a lot of
liquidity in the market.
Here are some leading economic indicators that have
proven illuminating over past recessions.
■ ■ New Residential Construction Report. Known
as “housing starts” on Wall Street, this U.S. Census
Bureau report shows what is happening with the
new-home market. A steep decline has preceded