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It's time again to check in with the Willie Mays of recession indicators — the 2s vs. 10s yield curve. Several months ago, the curve was inverted to -108 basis points. Today, we have steepened dramatically to -21 basis points. The steepening has historically meant the wolves are at the door, and the recession is here.
Why even care about recessions beyond slowing growth? The answer from a flows perspective is jobs. Reflect on the ramifications post the Dotcom era and the Global Financial Crisis: unemployment escalated to 7.7% and 10%, respectively. When compared with today's US workforce of 135.45 million, it hints at approximately 10.83 million individuals without employment. Drawing from 1982's unemployment rate of 10.8%, this figure could amount to 14.6 million, posing significant challenges to retirement financial plans.
Historically, unemployment has intensified during this period of the curve di-inverting/steepening/normalizing. Initial unemployment claims have been low; this will change. We see continued claims rising weekly, not dramatically, but indeed rising. The thinking here is that once people have lost a job, they cannot replace it. Layoffs start slowly and then escalate; it's much easier for the C-suite if everyone does it. The fastened seatbelt sign is switched on.
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