Recent news stories have questioned whether the United States will hit a recession, pointing to strong Retail Sales data for October which showed that consumers remained resilient and continued to spend despite inflation. Retail Sales were up 1.3% last month, which was stronger than estimates of 1%.

What’s the bottom line? The strength in Retail Sales may be more of an illusion, as additional data suggests some consumers are using credit cards and their savings for some of this spending. Credit card debt has risen 15% over the last year, which is the largest jump since the 2001 recession, while the nation’s savings rate has dropped to 3%, well below the pre-pandemic level of 7.8% in January 2020 and the lowest level since the 2008 to 2009 recession.

Meanwhile, recession signals are flashing in other areas of the economy, including in the manufacturing sector, shipping and especially yield curve inversions. Under normal circumstances, shorter-term maturities offer lower yields than their longer-term counterparts due to the shorter time commitment of tying up your investment. However, there are occasions where shorter-term maturities offer a yield that may be higher than longer-term maturities, which is called an inverted yield curve.

Recently, yields on the longest maturity Bond (the 30-year) and the shortest maturity Treasury (the 1-month) inverted. The last two times this happened, a recession followed shortly thereafter. In addition, we have seen other inversions in recent months, including 1-year and 2-year yields moving higher than 10-year yields. An inverted yield curve has been a historically accurate recession indicator, as it is a symptom that the economy is slowing.