Recession Ahead? Not If You’re Looking at Oil

Led by a deepening inversion in the Treasury market’s yield curve, U.S. recession indicators are adding up – with one notable exception: oil.

While West Texas Intermediate crude futures rose a 2.40% on Tuesday, they are still down some 20% over the past 12 months. The longer-term move in oil is relevant to any discussion about whether a recession is looming because every downturn since 1970 has been preceded by a doubling of oil prices the prior 12 months that has pressured consumer spending, which accounts for about two thirds of the economy, according to DataTrek Research. Now, though, the consumer is a bright spot in the economy. The Conference Board said on Tuesday that its index of how confident consumers are with their present situations jumped to an all-time high in August. On Wednesday, when the government provides its second estimate of how the economy performed last quarter, it is forecast to say that personal consumption jumped 4.3%, the most since 2017 and well above the average of 2.4% since the economy began to recover from the financial crisis in 2009. Few things get consumers to pull back like rising gasoline prices. But at an average of $2.585 a gallon, regular-grade gasoline prices as measured by the Automobile Association of America are below the average of $2.897 over the last 10 years and the almost $4 a gallon reached in 2011. “While other parts of the economy may show some weakening, consumers have remained confident and willing to spend,” Lynn Franco, senior director of economic indicators at the Conference Board, said in a statement.