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“Surprisingly weak”: these economic indicators flash red, according to experts

But there can be problems just below the surface, experts say. Indeed, even the recent stock market high came in response to negative news on the economy: the rally followed an announcement that the Federal Reserve may soon decide to cut short-term interest rates. While this makes borrowing less costly for businesses (hence the stock rally), it is a sign that policymakers are concerned about the long-term health of the economy.

So what exactly should you be worried about? Here are five signs experts say the economy is about to weaken.

A bond market upside down

Earlier this year, the bond market began showing one of its most reliable recession signals: yields on long-term Treasuries have slipped below those on short-term securities, suggesting that investors are Fixed income forecast slow growth rates and modest inflation in the years to come. (Investors are rushing to buy longer-term bonds, locking in today’s comparatively high yields. But as the prices of these bonds rise, their yields fall). The event, known as the yield curve inversion, made headlines when it first occurred in March, but only lasted a week. That, along with a few recent bond market changes by the Federal Reserve, has led many to ignore the indicator, which has historically suggested that a recession could occur within the next two years.

But from May, the yield curve inverted again. This time around, the reversal lasted for a month, making it much harder to amortize. “Almost 60% of the US yield curve is now inverted,” said Otavio Costa, analyst at Crescat Capital, in a recent tweet, referring to different bond maturities along the curve. “We are at the top of a historic bubble. At any moment, the wheels will come off.”

Manufacturers in difficulty

President Trump has placed American manufacturing jobs at the center of his economic vision. Earlier this month, however, the closely watched ISM manufacturing index fell to 52.1 in May from 52.8 in April. While a number above 50 suggests manufacturing companies are still expanding, commentators were quick to point out that the May reading was the lowest level of the Trump presidency. Since then, regional manufacturing indicators have also shown weakness. On June 18, the New York Fed said the Empire State Manufacturing Index posted its largest month-on-month decline, a “shockingly low” result, according to a note by chief economist Maria Fiorini Ramirez Inc. Joshua Shapiro.

One big culprit: Trump’s trade war with China. The Trump administration hopes that tariffs on Chinese products will help American manufacturers in the long run by making imports comparatively more expensive for American consumers. In the short term, however, it hurts, according to business leaders cited in the ISM survey who blamed tariffs for higher material costs and booming supply chains.

A looming earnings recession

The Tax Cuts and Jobs Act of 2017 gave U.S. businesses a boost last year by lowering the corporate tax rate, thereby increasing profits. The bad news: Businesses can’t count on lower rates for another year-over-year hike. Many market watchers worry about what they call an earnings recession – typically defined as two or more quarters in which corporate profits contract. After noticeably weak profits in the last quarter of 2018 – which resulted in the worst December for the Dow Jones since the 1930s – profits recovered somewhat in the first quarter.

Today, however, a relatively weak global economy, rising US wages and trade tensions with China are putting the pressure back on. Wall Street analysts expect corporate profits to fall 2.6% for the second quarter and 0.3% for the third before rebounding later this year, according to CNBC. Some investors may still be overly optimistic. “We have seen companies that performed poorly in the first quarter stick to strong fourth quarter guidance and maintain their optimism,” said Michael Wilson, equity strategist at Morgan Stanley, in a recent note. “We are not buying this story,” he added.

Lower house prices

While that doesn’t seem to be the case if you’re a millennial trying to buy a first home, the US real estate market has slowed down considerably over the past few months. On Tuesday, the widely watched S&P CoreLogic Case-Shiller Index showed U.S. home prices rose 3.5% year-over-year in April. While still positive, this represents the lowest growth rate in seven years.

According to at least one less watched metric, the Zillow housing website’s compilation of national home values, prices actually fell between April and March. If the market continues to weaken, that would be bad news. A real estate slowdown has preceded every U.S. recession since the 1950s, according to the Fed.

Suspicious consumers

Bullish US consumers, encouraged by a buzzing job market, have been one of the economy’s strongest pillars. Even here, however, cracks are starting to appear. Earlier this week, the Conference Board said its consumer confidence index fell to 121.5, its lowest level in nearly two years. The reading was lower than all forecasts by analysts polled by Bloomberg. While unemployment remains low, there are also signs of a slowdown in the labor market, with the United States adding just 75,000 jobs in May, up from an average of 212,000 in the previous 12 months.

While consumer confidence remains historically high, the recent drop “underscores the risk of ‘entering a recession’,” according to Greg McBride, chief financial analyst for Bankrate.com. “Consumers who think the economy is weak will spend less and business owners who think the economy is weak will not hire more people.

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