Recovery Indicators Are Being Ignored


As Team Obama readies its nearly $300 billion mortgage bailout — a plan that at best will have only minor positive impact, and at worst will welfare-ize the housing sector even more — there are recovery indicators out there that are being ignored by the pessimistic administration and its media allies.

Consumer incomes, after tax and adjusted for inflation, have increased for five straight months, which is largely from the tax-cut effect of plunging energy prices.

Housing affordability is at a record high. Purchasing-manager surveys are now bottoming out. Fear-based credit spreads continue to decline. The money supply is expanding rapidly. And commodity prices are bottoming.

And then there’s one indicator that never gets enough credit — the shape of the Treasury yield curve.


When short-term rates moved above long-term rates back in 2006, Ben Bernanke rushed to tell us that it would not signal a recession since interest rates were too low and historical precedence would not apply. By the middle of 2006, this curve had turned decisively negative, and roughly a year and a half later the economy headed into recession.

However, the Treasury curve has right-sized since February 2008, roughly a year ago. Today, 10-year govies are roughly 3 percent, while the 3-month Treasury bill is about 0.25 percent. This, of course, is a sign of monetary ease — usually with about a one-year lag the economy responds to this therapy. Well, it’s about a year right now.

Noteworthy is the factoid that nearly every post-WWII recession has been preceded by an inverted Treasury curve and an oil shock. Sound familiar? Then the economy heals as oil prices come down and the Treasury curve normalizes. Also sound familiar?