What Just Happened Also Occurred Before The Last 7 U.S. Recessions. Reason To Worry?
The floor of the New York Stock Exchange. An economic indicator known as the “yield curve inversion” hit the three-month mark, which has preceded the past 7 U.S. recessions.
Richard Drew/AP
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Richard Drew/AP
Signs are pointing to a coming U.S. recession, according to an economic indicator that has preceded every recession over the past five decades.
It is known among economists and Wall Street traders as a “yield curve inversion,” and it refers to when long-term interest rates are paying out less than short-term rates.
That curve has been flattening out and sloping down for more than a year, raising worries among some analysts that investors’ long-term view of the market is not positive and that an economic downturn is looming.
But on Sunday, an inauspicious milestone was achieved: The yield curve remained inverted for three months, or an entire quarter, which has for half a century been a clear signal that the economy is heading for recession in the next nine to 18 months, according to Campbell Harvey, a Duke University finance professor who spoke to NPR on Sunday. His research in the mid-1980s first linked yield curve inversions to recessions.
“That has been associated with predicting a recession for the last seven recessions,” Harvey said. “From the 1960s, this indicator has been reliable in terms of foretelling a recession, and also importantly, it has not given any false signals yet.”
In a 1986 dissertation, economist Campbell Harvey identified an economic indicator that would precede the next seven recessions. That indicator, known as “a yield curve inversion,” now forecasts a coming U.S. recession.
Courtesy of Campbell Harvey
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Courtesy of Campbell Harvey
Still, many economic forecasters do not see a recession on the horizon.
For instance, Randal Quarles, the Federal Reserve’s vice chairman for banking supervision, has said that the gap between short- and long-term interest rates does not mean the U.S. is moving toward a recession.
And then there is a sea of bright economic news setting the backdrop for the yield curve inversion hitting its three-month mark: unemployment is at a near historic low, the stock market is going strong. The S&P 500 is up 17% for the year. And while some economists say the pace of growth may be slowing, the consensus view is that a dramatic economic plunge is not on the horizon.
But Harvey says no single economic predictor has the impressively prescient track record of the yield curve inversion.
“Yes, the economy looks good right now,” Harvey said. “But the yield curve is about the future,” he said. “It captures the expectations of the broad market in terms of what might happen in the future.”
Might a whole quarter of an inverted yield curve become a self-fulfilling prophecy?
“Perhaps,” Harvey said.
Consumers could see the data point as a red flag and pull back on spending, or corporations may view the sloping yield curve and decide not to make investments or hire new employees.
“I look at it more in terms of risk management. This is an important piece of information. It helps people plan,” Harvey said. “It enhances the possibility that we have a soft landing, not a hard landing, like a global financial crisis.”
If the idea of an inverted yield curve remains hard to grasp, Harvey says think of it this way: a yield curve is the difference between a short term cash instrument, like a three-month government bill, compared to a long-term one, such as a 30-year government bond. When the short-term ones are paying out more than the longer-term ones, something is wrong. And economists call it an inverted yield curve.
Or, Harvey said, think of a certificate of deposit at a bank, better known as a CD.
“If you lock your money up for five years, you expect to get a higher rate than, say, locking it up for six months,” he said.
“But in certain rare situations, things get backwards and it turns out the long-term interest rate is lower than the short-term rate, and that’s called an inverted yield curve. That’s exactly the situation we got now, and it is a harbinger of bad news.”
A Senior Women’s Soccer League
As the women’s World Cup continues in France, there’s another group of tough athletes taking the field in the San Diego area. Many are age 70 and older. Don’t even think about telling them to sit.
LULU GARCIA-NAVARRO, HOST:
The U.S. women will play England in the semi-final round of the World Cup on Tuesday. And so we thought we’d bring you the story of some other tough and inspirational female soccer players. Gloria Hillard reports from San Diego, Calif., at the matchup between the blues and the whites.
UNIDENTIFIED PERSON #1: OK, ladies (clapping). Blues over there. Whites over here.
GLORIA HILLARD, BYLINE: In a purple headscarf and wearing for the blue team, Tina Zucker is getting in some last-minute dribbling practice.
TINA ZUCKER: Well, the thing about playing soccer and being 70 is I don’t feel 70.
HILLARD: Although she admits when she’s out and about and wearing her soccer uniform, people will often ask…
ZUCKER: Do you play soccer or do you coach soccer or do you go to see your grandchildren? I’m like, I play. And that’s the thing that all of us go through.
UNIDENTIFIED PERSON #2: Come on, Ladies. Keep coming. Keep coming. Oh, my God.
HILLARD: Most of these women play for the Prime of Life Women’s Soccer League in San Diego. They are not only playing a game they love. They are sharing the dreams of a younger generation, something they couldn’t have imagined as young girls – a U.S. Women’s National Soccer Team. Seventy-two-year-old Joan Captain says in the 1950s and ’60s and before Title IX, girls were often discouraged from playing sports.
JOAN CAPTAIN: When I grew up, you had to be a, quote, quote, “a lady.”
HILLARD: She’s changing out her jersey so there will be an equal number of good players on each team and doing pushups.
CAPTAIN: I usually play forward or I usually play defense. I had people say, oh, that’s so dangerous, you know, you should take it easy. And I say, well, you see that couch over there? The couch will kill you (laughter).
UNIDENTIFIED PERSON #3: Nice job, Trish, even if you are on the other team.
HILLARD: Brandi Mitchell of San Diego Soccer Women says these women are a demographic that should be recognized.
BRANDI MITCHELL: They’ve gone against, culturally, what we expect of women in those age groups not only as athletes but specifically with a sport that you just don’t see being offered to women of older ages in general.
HILLARD: At 79, Danielle Madsen has been playing soccer for 40 years – maybe not as hard and tough as two decades ago.
DANIELLE MADSEN: On our two teams, they’re very nice. And they don’t kill you (laughter). So playing against some of the other teams – yeah, you can get hurt.
HILLARD: She’s referring to those young players in their 50s. There’s only one exception in senior women’s soccer – no slide tackling. And that’s just fine with Karen Tenney. She says she doesn’t notice how many times she hits the grass during the game. She just counts her bruises in the morning.
KAREN TENNEY: I’ve broken my wrist and my thumb, both from friendly fire. I still played with it. I put a cast on, I put bubble wrap on it so I could still play.
HILLARD: From the sidelines, cheering the women on are a few retired former team members along with Lucy, a golden retriever and mascot for both teams. Patty Storm says at this time in their life, the game is more about camaraderie than competition.
PATTY STORM: It’s just pulling together and supporting each other and getting some wonderful exercise.
HILLARD: The players do admit when it’s tournament time, it’s game on. In this game, well, there was some debate as to whether the score was 1-0 or tied. Tina Zucker just shrugs.
ZUCKER: Honestly, I have no idea. I just know that I ran after the ball. Sometimes, I got it. Sometimes, I didn’t. And that’s the name of the game.
HILLARD: A game she plays three times a week.
For NPR News, I’m Gloria Hillard.
(SOUNDBITE OF SOLIMINE AND BURKI’S “WHEN YOU’RE SMILING”)
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Politicians, Government Agencies Feud Over Payouts Tied To Opioid Epidemic
A 5ml dose of liquid oxycodone, an opioid pain relief medication, sits on a table in Washington, D.C., March 29, 2019. During the opioid epidemic, roughly 218,000 Americans have died from overdoses tied to prescription pain pills, according to the Centers for Disease Control and Prevention.
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Government officials are bickering over hundreds of millions of dollars in settlements paid by Big Pharma, stemming from the nation’s deadly opioid epidemic.
The pharmaceutical industry paid out more than half a billion dollars over the last year alone. All sides expect the scale of settlements to grow fast as more cases go to trial.
Drug companies are accused of kick-starting the addiction crisis by aggressively marketing opioid pain medications over the past two decades. During the epidemic, roughly 218,000 Americans have died from overdoses tied to prescription pain pills, according to the Centers for Disease Control and Prevention.
Federal, state and local officials have filed hundreds of lawsuits against drug companies, using different teams of lawyers, while often making substantially different claims and legal arguments.
A growing number of sources have told NPR they’re concerned that the effort to hold the pharmaceutical industry accountable could unravel into a legal fight between governments.
There’s no agreement in place for how payouts will be distributed. In recent days, feuding between local, state and federal agencies has begun to spill into the open.
In an Ohio courtroom this week, a federal judge suspended work on a plan to compensate 24,000 local governments for their opioid-related costs, after state attorneys general weighed in strongly against the proposal.
“If we get money, how are going to use it?” asked Joe Rice, an architect of the proposal, who leads a team of attorneys representing more than 1,200 local governments suing Big Pharma.
Their cases have been consolidated into a single trial set to begin in federal court in Ohio in October. “Let’s get a plan in place. Because it also has to fit together,” Rice added.
The federal judge overseeing the consolidated trial, Dan Polster, has repeatedly urged officials to come up with just such a roadmap for compensation that will hasten a “global” settlement with the drug industry.
But after Rice’s group came up with a concept that would involve every local government in the U.S. — creating a kind of super-sized class action lawsuit – state attorneys general cried foul.
“To certify a negotiation class so quickly and so early in the process, before everyone’s had a chance to determine what their best interest is, constitutes a new and novel procedure that could result in a grave miscarriage of justice,” cautioned Texas Attorney General Ken Paxton, in a June 24 letter to Judge Polster.
The letter was co-signed by 26 other state attorneys general. Judge Polster delayed action on the plan until August.
Meanwhile, the federal government has entered the money fray, seeking to garnish “a portion” of Oklahoma’s recent $270 million settlement with Purdue Pharmaceuticals.
The demand came in a June 12 letter from the Centers for Medicare and Medicaid Services, which argued that part of Purdue’s payout was meant to cover alleged Medicaid fraud, which harmed federal as well as state taxpayers.
“We are aware of the letter and are reviewing it,” wrote Alex Gerszewski, a spokesman for Oklahoma Attorney General Mike Hunter, in an email to NPR. “This will not affect state revenue,” he added.
Even within individual states there are growing tensions over how opioid money will be allocated. When Hunter won Oklahoma’s settlement with Purdue in March, he agreed unilaterally to a plan for how the money would be spent.
The lion’s share won’t go to fund programs designed to aid people who are opioid-dependent, or to help local governments struggling with the crisis. Instead, Hunter agreed to divert roughly $200 million to pay for a new addiction research center at the Oklahoma State University in Tulsa.
State lawmakers in Oklahoma were furious. “Rose petals were not strewn in my path,” Hunter acknowledged in a speech before the Bipartisan Policy Council in Washington DC last month. “There was a great consternation with me going around the appropriations process.”
Now that the federal government is asking for its slice of the money, his plan has become even more controversial.
Oklahoma’s legislature has since passed a state law requiring that future opioid settlements go into the state’s general fund. Last week, the state’s politicians narrowly averted a legal clash over an $85 million payout from another drug firm called Teva Pharmaceuticals.
This money fight is playing out against the troubled history that followed the tobacco settlements of the 1990s. Cigarette makers agreed to pay more than $240 billion to end their liability for cancer deaths caused by their products.
But much of that cash has since been diverted by government officials away from health programs and campaigns aimed to reduce smoking rates.
Critics worry that drug industry settlements could also be used to fill budget gaps or to pay for local, state and federal programs unrelated to the opioid epidemic.
