(The Messenger)—Economists have practically sounded the all-clear on a looming recession, but plenty of signs are still flashing red. Clearly, economists were wrong earlier this year when they forecast an economic contraction that has yet to manifest. Could they be wrong now?
To be sure, economic growth, the labor market and consumer spending have proven unexpectedly resilient in the face of rising interest rates and elevated inflation. But there are still plenty of signs a recession might still be on its way.
1. An “uncertain outlook” from leading indicators
Many mainstay economic indicators measure the past. So-called leading indicators reflect what likely lies ahead. The Conference Board’s U.S. Leading Economic Index for July marked its 16th consecutive drop and its longest losing streak since the run-up to the Great Recession in 2007 and 2008.
The index is based on 10 components, ranging from stock prices and interest rates to unemployment claims and consumer expectations for business conditions.
“The outlook remains highly uncertain,” said Justyna Zabinska-La Monica, senior manager of business cycle indicators, at The Conference Board. “The leading index continues to suggest that economic activity is likely to decelerate and descend into mild contraction in the months ahead.”
2. Consumer confidence is just a hair above recessionary levels
The Conference Board’s consumer confidence index came in at 80.2 in August, hovering just above 80, the level that often signals the U.S. economy is headed for a recession in the coming year.
It is also a leading indicator used to predict consumer spending, which drives more than two-thirds of U.S. economic activity.
3. Consumers are foregoing big-ticket purchases
Retailers report that their customers have shifted their purchasing habits, spending less on furniture and other big ticket items in favor of necessities. They have also been trading down on grocery items, ditching pricier cuts of beef and buying chicken.
“We saw some switch even to some canned products, like canned chicken and canned tuna and things like that,” Costco’s Chief Financial Officer Richard Galanti told analysts on a May conference call.
Consumer spending has remained one of the bright spots in the economy, but most investors expect consumer spending to slow by as early as next year, Bloomberg’s latest Markets Live Pulse survey found.
4. Credit cards are getting maxed out
U.S. consumers ran up their credit card debt past the $1 trillion mark for the first time last month, according to a report on household debt from the Federal Reserve Bank of New York.
Total household debt, which includes home and auto loans, has eclipsed $17 trillion.
The Federal Reserve Bank of St. Louis reports that credit card delinquencies, which are still low compared to periods such as the Great Financial Crisis, are on the rise.
5. Banks are increasingly reluctant to lend
The latest Senior Loan Officer Opinion Survey by the Federal Reserve reports tightening credit conditions across the board, from business loans to home mortgages and consumer credit.
When banks pull back on lending, businesses curb their investments and consumers cut spending, and this trend is expected to continue for at least the rest of the year.
“Regarding banks’ outlook for the second half of 2023, banks reported expecting to further tighten standards on all loan categories,” the Fed survey concluded. “Banks most frequently cited a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further.”
6. Corporate bonds are maturing and refinancing them will be costly
Goldman Sachs estimates that $1.8 trillion in corporate debt is coming due over the next two years and it will have to be refinanced at higher interest rates. The expense will eat up more corporate resources, possibly leading to slower growth and investment.
Recessions occur as debt levels peak and borrowers begin to default. Moody’s has already reported a surge in corporate defaults this year. In the first half of the year, it counted 55, that’s 53% more than the 36 that defaulted in all of 2022.
7. Manufacturing remains in a prolonged post-pandemic slump
Manufacturing has been in decline for 10 consecutive months, as measured by the ISM Manufacturing Purchasing Managers Index. Respondents to the ISM survey reported weaker customer demand because of higher prices and interest rates.
“Orders are in fact falling faster than factories are cutting output, suggesting firms will need to continue scaling back their production volumes into the near future,” writes Chris Williamson, chief business economist at S&P Global Market Intelligence. “An increasing sense of gloom about the near-term outlook has meanwhile hit hiring and led to a further major pull-back in purchasing activity.”
8. ‘Cascading crises’ could tip the balance of a slowing global economy
China, a growth engine for the past 40 years, is still struggling to recover from the pandemic, global economic growth has fallen below long-term average, and the ailing world could pull the U.S. economy down with it.
Like a plane crash, every economic disaster stems from a confluence of mishaps. Along these lines, G20 nations on Saturday put out a dire warning:
“Cascading crises have posed challenges to long-term growth,” the group said. “With notable tightening in global financial conditions, which could worsen debt vulnerabilities, persistent inflation and geoeconomic tensions, the balance of risks remains tilted to the downside.”
9. The yield curve, a classic recessionary signal, is still inverted
Investors should be paid more for taking a long-term risk than they should for a short-term risk. That’s why the yield on a 10-year Treasury is supposed to pay a higher yield than a 2-year Treasury.
When this is not the case, it’s called an inverted yield curve, and it has long been considered a sign that a recession is due within the next 18 months.
The yield curve for 10-year and the 2-year Treasury has been inverted since July 2022. It’s been inverted for so long that many observers have given up on its reliability — though it still hasn’t been 18 months since it first inverted. As for history, the yield curve last inverted was in late 2019, just before the pandemic U.S. recession.
10. Inflation is sticky, and the Fed isn’t done
The soft landing scenario that is so widely embraced is based on observations that inflation has dropped precipitously as the economy continues to grow at a healthy pace and the labor market is still holding strong with the unemployment rate at 3.8%.
The Fed, which has raised interest rates 11 times since March 2022 to curb inflation, can now take a bow. The consumer price index, which measures inflation, has come down from a peak of over 9% in June 2022 to 3.2% on its last reading in July.
The next reading on CPI, for August, comes out Wednesday, and it may not have budged much.
Meanwhile, the Fed, which next meets on Sept. 19-20 to decide on interest rates, is holding fast to its 2% target for inflation and will keep rates higher for longer, or possibly even raise them further to meet that goal.
Wall Street traders are not expecting another increase this month, according to the CME FedWatch tool, which is based on Fed funds futures trading.
Policy makers are still waiting to see what happens next after raising rates to their highest level in 22 years. Perhaps those actions have already sent the economy on a path of contraction. Or perhaps they haven’t done enough to continue slowing inflation.
Sticky inflation presents on ongoing risk of a recession.
“I believe we must proceed gradually,” Dallas Fed President Lorie Logan said last week, “weighing the risk that inflation will be too high against the risk of dampening the economy too much.”
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Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.
