RALEIGH – The leading economic indicators within North Carolina’s economy remain “little changed,” according to the latest economic index from North Carolina State University. But a rececssion for the U.S. could be coming, according to a key indicator on Wall Street, which would mean trobule for the state.
The North Carolina State University Index of North Carolina Leading Economic Indicators, which is a forecast of the director of the state’s economy for between four to six months ahead, was down by 0.6%, which the report called “modest.”
“But it has still displayed an upward trend during the last year,” the Index’s report, which is authored by Dr. Michael Walden, a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University and a regular contributor to WRAL TechWire, reads.
However, CNN reported on Monday evening that recession talk is growing.
Surging oil and gas prices have raised recession alarm bells around the world, and another economic indicator is starting to look ominous:
The yield curve is flattening.
Wall Street closely watches the difference, or spread, between short-term government bond yields, most notably the 2-year Treasury, and longer-term bond rates like the 10-year Treasury.
As that spread diminishes, investors worry that the yield curve could eventually invert, meaning that short-term rates would be higher than long-term yields. As of Friday, the difference was just 0.25%, with the 10-year yield at around 2% and the 2-year yielding 1.75%.
The gap widened a bit Monday, as the 10-year rose to 2.1% and the 2-year yield was up to about 1.82%, making the spread 0.28%.
An inverted yield curve has often been a potential recession signal. The yield curve inverted in 2019 before the 2020 Covid-induced recession. It also did so in 2007 before the 2008 Global Financial Crisis/Great Recession. And it inverted in early 2000 right before the dot-com/tech stock meltdown.
US Labor Secretary Marty Walsh told CNN’s Poppy Harlow that a recession is “a real likelihood” but he added that “we have a very strong economy” and noted that the job market in particular is healthy.
The latest data from the North Carolina Department of Commerce showed that the statewide unemployment rate dropped to 3.9% in January, a decrease of 0.2 percentage points compared to December.
The national picture
Nationally, the index has not changed in January 2022 compared to December 2022, Walden noted. Yet that was before the Ukraine invasion and surging energy prices.
“An increase in initial jobless claims and declines in both manufacturing hours and earnings were partially offset by a strong gain in building permits,” the report notes. Jobless claims were up more than 16% month-over-month but were down 77.5% year-over-year, the report found.
Meanwhile, building permits were up 15% month-over-month and up 32.8% year-over-year as housing markets remain increasingly competitive due to low inventory of homes for sale and a nationwide housing shortage.
A new threat
The economic indicators tracked in the index would otherwise be a positive sign for the economy, especially with Omicron receding, Walden told WRAL TechWire yesterday. But the war in Ukraine is a “new crisis” that is likely to bring an elevated level of uncertainty for as long as the conflict continues.
One decision to track, suggested Walden, would be whether the Federal Reserve goes ahead with increasing interest rates, and if so, by how much.
“For the first time in 40 years, I’m hearing worries about “stagflation” – an economic situation occurring when the inflation rate is high and economic growth is low,” said Walden in the interview. “It’s the worst of all situations,” he added.