The first staging post is a housing recession. US residential fixed investment (home building) has slumped by a fifth. This is significant because post-1970 housing recessions have predicted economic recessions with a perfect four out of four success rate: 1974; 1980; 1990; and 2007 (Chart 1).
The second staging post is bank failures. Banks tend to fail just before recessions begin. Ahead of the recession that began in December 2007, no US bank failed in 2005 or 2006. The first three bank failures happened in February, September, and October of 2007, just before the recession onset.
Fast forward, and no US bank failed in 2021 or 2022. The first bank failures of this cycle – Silicon Valley Bank and Signature Bank – have just happened. If history is any guide, the start of bank failures presages an economic recession that is more imminent than many people anticipate (Chart 2).
So, the third and final staging post to recession is the US unemployment rate increasing by 0.5 percent. So far, it is up by 0.2 percent.
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