US economic recession prediction

18 Jul 2022

The indicator (10 year US treasury yield-2 year US treasury yield) hits zero for the second times recently. That is when short-term interest rates exceed long-term rates. The technical name is called the yield curve inversion.

The significance of this phenomenon is that the US economy is expected to be in a recession in the next 6-12 months

This indicator has been a very accurate predictor of US economic recession in the past since 1978. The graph below is the history of the recession periods in gray, the blue line is the indicator. You can see when ever it hits zero percent, an economic recession will follow after 6-12 months.The most recent one is during the COVID outbreak in early 2020. The longest recession was the Global Financial Crisis in 2009.  

Source: FRED economic data

Since the US economy in GDP is the largest in the world, when it is in a recession it will affect many nations' economy. In the past, Australia had been cushioned by influx of Chinese tourists, Chinese students and investment, but COVID 19 has stopped most of these income streams. 

However, the only sector a recession will benefit is property rental, as more people incline to rent rather than buy properties.

So, sit tight for this one. It might be worse than before because of the high inflation and COVID is still lingering. Save some money for the bad economic weather.



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it is going to be a very interesting next 12 months. In my view property investors are likely to pass on mortgage cost increases onto renters. Making a tight rental market even more difficult to find and afford a rental property we may see more shared rentals and people staying at home with parents longer. A recession is likely to impact all parts of the economy however opportunities for disruption will exist.
Johnson Chau
If it is going to be a recession, then it's time to fasten your seatbelts! It's going to a red ride from here - but I have very strong faith in the US economy, especially when there is so many amazing technology innovation there! LETS GO!
I like your point on property rental, as it might be cheaper to rent then to pay an expensive mortgage rate to own a house!