Benzinga - For more than a year now, investors and economists have been concerned rising interest rates could trigger a U.S. recession. Up to this point, the economy has remained resilient.
On Friday, Bank of America economist Ethan Harris said there are a growing number of signs the economy is weakening, but he is watching three particular indicators as potential red flags the economy may finally be slipping into a recession.
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Recession Indicators: First, Harris said jobless claims are the best early indicator a recession is coming. The tech sector has been issuing aggressive layoffs for several months, but companies in other sectors have been hanging onto employees up to this point.
Second, Harris said he is watching Bank of America credit card data for signs of weakening good demand and retail sales. Card spending per household was up 0.1% in March, a significant deceleration from earlier in the year.
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Finally, Harris said he is monitoring the credit markets closely following the March banking crisis. A recent Dallas Fed survey indicated lending conditions are tightening, but Harris said he will be looking to the Fed’s Senior Loan Officer’s Survey in May for a clearer picture of credit market conditions.
"We expect the economy to slide into a mild recession in 3Q, lasting for three quarters and lowering the level of GDP by about a percentage point," Harris said.
Bank of America anticipates the first Fed rate cut in early 2024 and predicts inflation will fall in line with the Fed's 2% target by the end of next year.
Benzinga's Take: The SPDR S&P 500 ETF Trust (NYSE: SPY) has rallied 7.7% year-to-date, seemingly on optimism the Fed can contain inflation without triggering a recession. If Bank of America's forecast is correct, conditions in the U.S. economy may get far worse from here before they get better.
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