Negative signs about the state of the economy continue to accumulate, the latest being the inversion of the yield curve. However, perhaps most worrying is the revised physical investment data from second quarter. It fell--as it has done in almost every single recession since World War Two.
This is unusual. “
Typically, investors expect to get paid a higher rate of return when they are lending money for a longer period of time, because the risks are higher .” The offsetting factor during a yield inversion is the belief on the part of investors that future rates of return will be quite low relative to today’s. If the expected difference is sufficiently large, it can invert the typical pattern., in general it has been a very reliable indicator. I’ve never been completely sold, to be honest. But, in the current context I would be disposed to take it seriously..
Let's hope not, but the evidence continues to accumulate. Third-quarter investment data may tell the tale; until then we'll have to be satisfied with the final revision of 2019:2 . I am a professor of Economics at Texas Christian University, where I have worked since 1987. My areas of specialty are international economics (particularly exchange rat...
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