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Noah Smith

If There’s a Recession, It Will Be Made in China

The country’s integration into the world economy drove three decades of growth. That’s over.

Another kind of export.

Another kind of export.

Photographer: Ulrich Baumgarten/Getty Images

It’s official -- the yield curve has now definitely inverted, meaning that one of the most reliable signals of an impending recession is now flashing warning signs. For a while, the inversion was only partial; some spreads between long-term and short-term bond yields fell below zero, but the spread between 10-year and 2-year Treasury bonds remained positive. That too dipped briefly into negative territory:

An inverted yield curve means that investors expect interest rates to fall, which typically happens in a contraction. It tends to take a while, though -- 12 to 18 months. That rule of thumb could mean a recession anywhere between March 2020 and February 2021. And it’s even possible that the yield curve could be giving a false signal. So although the yield curve inversion isn't good news, it’s no cause for panic. For now, U.S. economic data such as retail sales and jobless claims are holding up reasonably well.