Entering text into the input field will update the search result below

How To Interpret A Recession Watch From The Long Leading Indicators

New Deal Democrat profile picture
New Deal Democrat


  • Long leading indicators typically peak one year or more before the beginning of a recession.
  • Now that a plurality of such indicators have turned negative, there are issues as to the duration of the signal and how to confirm it.
  • The signal does not mean that a recession is certain, and only gives a starting date for the watch period.
  • The signal is best used by looking for persistence and looking to see if short leading indicators turn negative as well.


Now that enough indicators have turned so that I have begun a “recession watch,” what does that mean?

Look for persistence and confirmation

Since, by definition, long leading indicators tend to turn at peaks at least one year before the top of the economic peak, the starting point for a turn is one year off. But if you go back and check over the last 50 years, recessions usually haven’t started until 2-3 years after the peaks in most of the indicators.

But while the yield curve and credit conditions, in some iterations, just turned in Q4 of 2018, corporate bond yields hit their low at least one year ago, and by some measures, in July of 2016. Meanwhile single-family housing permits peaked 12 months ago, and real M2 turned negative YoY 13 months ago.

Ironically, the long leading indicator that is most regular in terms of its lead time is corporate profits, which most usually peaks within one quarter of one year before a recession - and which, as far as we know, hasn’t peaked yet! Below is a graph showing the YoY% change in corporate profits, which typically turns negative within one quarter of the onset of a recession:

Needless to say, as one of the two positive “holdouts” among the long leading indicators, corporate profits bear close watching.

Next, here’s a look at the yield curve. Below I show both the 1-year to 5-year comparison going back nearly 50 years. This portion of the yield curve has typically (not always!) invested between 10 and 18 months before the onset of a recession (and several times has inverted before the recession began):

The bottom line is, the ending date for the onset of a recession is difficult to quantify, but probably the latest I would expect a downturn

This article was written by

New Deal Democrat profile picture
New Deal democrat As a professional who started an individual investor for almost 30 yeas ago, I quickly focused on economic cycles and the order in which they typically proceed. I have been writing about the economy for nearly 15 of those years, developing several alternate systems that include mid-cycle, long leading, short leading, coincident, lagging and long lagging indicators. I also focus particularly on their effects on average working and middle class Americans.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.