Friday, November 18, 2016

If you have to look at just one thing . . .

 - by New Deal democrat

I'm already seeing a little chatter on political sites about whether or not there will be a recessison before the midterms.

The picture as to 2017 is coming into sharper focus, and at least through Q3, the short story is probably "Indian Summer" -- the forward-looking data looks pretty positive for the next 3 quarters.

After that, if you need to look at just one thing, then focus on interest rates.  Here is the 10 year Treasury bond as of this morning:

We made a new low in interest rates this July, due to a "flight to safety" after the Brexit vote.  Those low rates are feeding through into housing now, and that in turn will feed through into things like spending and production next year.

But probably due to the election, we've had a signficant increase in interest rates. During trading this morning, we tied the 12 month high of 3.34%.  Depending on how high interest rates back up, and how long they stay that way, we could see a sharp slowdown or even a downturn thereafter, for the same reasons that the post-Brexit lows will help the economy in the near future.

So if you don't want to follow an array of indicators, and you are interested in what the economy will look like going into the 2018 midterms, then focus on interest rates.