Recessions don’t come on a schedule, but most times there are some warning signs on the horizon.
By looking at current macroeconomic trends, Savita Subramanian at Bank of America Merrill Lynch extrapolated the timing of the next recession.
“But in examining some of some of our favorite indicators’ recent trends, we did find evidence for an imminent recession,” the BAML equity strategist wrote in a note to clients on Wednesday. “While the range of signals is wide, in aggregate they do suggest that, if data were to continue to weaken in line with the recent pace, history would point to a recession in the second half of 2017.”
Subramanian looked at five main macro factors to determine what they are saying about a recession: the two-year Treasury yield vs. the 10-year yield, the ISM manufacturing index, building permits, temporary-help job growth, and commercial and industrial loan growth.
By looking at what each of these indicators did before previous recessions over the life of the indicator, Subramanian came up with an estimate of where we are in the business cycle.
“In this scenario, the range of potential recession start dates implied by these models was as early as July 2016 and as far off as April 2019, with an average start date of October 2017,” Subramanian wrote.
Just a reminder.
Another reminder: ALL market crashes are by design.