articles Ratings /ratings/en/research/articles/191125-economic-research-u-s-business-cycle-barometer-walk-the-line-11254487 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

Economic Research: U.S. Business Cycle Barometer: Walk The Line

Economic Research: U.S. Business Cycle Barometer: Walk The Line

(Editor's Note: In each quarterly issue of "U.S. Business Cycle Barometer," we highlight and comment on key economic activity data, and we evaluate their potential relevance for risks to expansion.)

S&P Global Economics' recession model, which is based on key financial market indicators up to mid-November, indicates that the probability of a recession starting in the coming 12 months has moved down to 30%. The probability of recession risk based on this model was 35% in August (see chart 1).

A key driver of our recession model, the term spread (10-year minus three-month Treasury rates), which had been negative since late May, reversed its trajectory to become positive in mid-October (see chart 2). The yield curve returns to being positively sloped, leading the upturn by five to 15 months (excluding the Great Recession). However, since the average recession lasted only 10 months during the postwar period, the lead has been of little use for forecasting periods. The yield curve returned to being positively sloped before the last three recessions began.

The "un-inverting" of the yield curve is a reflection of easing of three issues that had heightened investors concerns around midyear.

First, the escalation in trade talks between the U.S. and China has eased some. A possible "phase 1" deal is reportedly in the works. However, we caution the details are yet to be announced and chances of a reversal in sentiment are still elevated.

Second, there are tentative signs that the deterioration in manufacturing may be coming to an end. As an early sign of bottoming out, the sector eeked out slightly positive real output growth in the third quarter following two consecutive quarters of decline--even while business manager sentiments are unfavorable. Still, unless we see a material pickup in orders in the coming months, we hesitate to say a definite upswing is in place. After all, headwinds to manufacturing from slower global growth remain.

Third, and most importantly, the Federal Reserve cut policy rates two more times (25 basis points each) since our August publication, bringing down its policy rate to 1.5%-1.75%. In the midyear yield curve inversion, markets showed their preference that likely reflected a belief that the equilibrium real neutral rate has fallen to near zero (compared with the 0.5% median Fed estimate), which was in tandem with an increased likelihood of slower growth and lower inflation for longer.

Financial markets signaled they expected a downturn if the Fed didn't respond by cutting its short-term policy rates, and the Fed promptly got ahead of that by making 75 basis point insurance cuts. The accommodation by the Fed reassured financial markets that the Fed will lean against increased downside risks to provide a growth buffer. It also helped stabilize the housing sector, with building permits reporting significant gains.

Chart 1


Chart 2


Leading Indicators Of Near-Term Growth

Because Federal Open Market Committee (FOMC) members have said that they are data-dependent, incoming economic and financial data will affect FOMC decisions. By the same token, we are monitoring upcoming data to gauge signals, which could affect our recession call.

Our dashboard of leading indicators of near-term growth didn't deteriorate since our last publication (see table). Out of 10 leading indicators of near-term U.S. economic growth that we like to look at, three indicators are positive for growth, five are neutral, and two are negative. Since our report in August, the term spread and single-family building permits turned neutral from negative, and the Institute for Supply Management (ISM) Manufacturing New Orders Index turned negative from neutral.


The incoming economic data has been on the weaker side in manufacturing compared with last year, albeit above recessionary levels. The sector's orders (leading indicator of production activity in the coming months) have been hit by global weakness, the General Motors strike, and Boeing's woes. The ISM Manufacturing New Orders Index turned contractionary (below 50) since we last published (see chart 3). This channel is likely to be negative for growth in the next few months.

On the other hand, building permits have clearly bottomed out and started to move back up (see chart 4). The growth signal now is neutral (and leaning positive). Permits jumped by 5% month over month to 1.46 million annualized in October, a 12.5-year high, stemming from:

  • An increase in multifamily units and
  • The more important single-family permits--the best measure of underlying housing demand--which increased for the sixth consecutive month to 909,000.

Growth in building permits has outpaced starts in recent months, pointing to a sizable number of projects in the pipelines. The 30-year fixed mortgage rate has increased in recent weeks, but it remains below 4%. And, after approaching 5% in late 2018, it is a very attractive rate that is pulling potential first-time buyers off the sidelines. The National Association of Home Builders Housing Market Sentiment Index remained elevated at 70 in November, pointing toward continued increases in new single-family home sales.

Chart 3


Chart 4


The easing in the six-month growth rate of the OECD's leading indicator composite index resembles the temporary slowdowns of 2012 and 2016 rather than the sharper declines during historical recessions.

Viewed through a multiple outcome framework, the composite leading indicator, combined with the dispersion of sectoral drivers of growth in activity within the economy, still suggests elevated odds of weaker growth in the coming six months. But, they have eased somewhat since their local peak in the first quarter.

While we do not see clear evidence of a larger slowdown already taking hold that is worse than the economy working through a long-anticipated growth slowdown (transitioning from a near 3% to a near 2% economy), the variance on timing and scope of the slowdown has increased.

Chart 5


Where Do The Coincident Indicators Stand?

Collectively, the coincident indicators from the Conference Board suggest the economy still has room to grow as it flirts with the late-cycle stage of expansion. Compared with the average of the prior six cycles, all four key indicators continue to depict smaller cumulative growth in the current cycle from the previous peak. As such, signs of overheating in the broader economy are scant. That said, a comparison of the performance of coincident indicators with previous expansions benchmarked at this stage of the business cycle using the output gap (i.e., an estimated output gap of +0.8%, as opposed to their peaks) yields a smaller gap compared with previous cycles.

Chart 6


Chart 7


Chart 8


Chart 9


Chart 10


Chart 11


The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.

U.S. Chief Economist:Beth Ann Bovino, New York (1) 212-438-1652;
U.S. Senior Economist:Satyam Panday, New York + 1 (212) 438 6009;

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to:

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back