The latest recession coming by the Wolters Kluwer Blue Chip Economic Indicators show that the economy will remain on solid footing next year, with only a 54% chance of recession. It is hard to envision a winter storm brewing on the horizon, especially when it is sunny outside. Despite rising interest rates and historically high inflation, business and consumer spending are holding steady.

Inversion of the yield curve
The yield curve is a key economic indicator. It shows the current interest rate relative to the future rate. Any change in the slope will mean that the odds of a recession are higher. The yield curve has predictive value but it does not necessarily predict recession. There are other factors that influence the slope of the curve.

One of these factors is the two-year Treasury yield. It recently crossed over the 10-year yield but pulled back below it, indicating an inversion. While this indicator is not a surefire sign of a recession, it is a strong indicator. Historically, the yield curve inverts before a recession. This inversion usually precedes the recession by six to 24 months. Researchers at the San Francisco Fed have studied the correlation between yield curve inversions and recessions.

Inflationary pressures
Several factors suggest that inflationary pressures will accompany the onset of a recession. Firstly, unemployment is low. If unemployment is low, it will be easier to fight the inflationary pressures. On the other hand, high inflation means too much money is chasing too few goods.

Serious inflation usually follows a period of stagnation, unemployment, financial chaos, and serious economic problems. It's like a form of sovereign default. If the currency is worth half of its value, a country is essentially defaulting on half of its debt. A recession can cause a country to go bankrupt and become unable to pay its debts. However, the Fed's policies should not be viewed as a cause of inflation.

Another factor that can exacerbate the inflationary pressures is the rise of interest rates. Higher interest rates make it more expensive to borrow, making it more difficult to meet needs. Therefore, the Fed wants people to think twice before taking on additional debt. Furthermore, higher interest rates can reduce demand.

Falling wholesale-retail sales
A recession is defined as a significant drop in economic activity that lasts more than a few months. When this happens, it results in a decline in real GDP, employment, industrial production, and wholesale-retail sales. Retailers' excess stock levels in June were 12% below their long-term average of 17%. This number is projected to be similar in July. Year-over-year, retailers' orders with suppliers dropped 8% in June, compared to 2% in June last year. It marks the fourth straight month of falling or flat order levels. July is expected to follow suit, making it five straight months of falling order levels.

Despite the challenges of the current recession, there are also opportunities for retailers. By working with the changing consumer landscape, they can strengthen their brands' value propositions and reduce their costs. They can also use the crisis as an opportunity to clean up their financial situation. Although the next 18 months will be difficult for DTCs, the opportunity to refocus the business can be a boon for those who can remain patient.

Falling employment numbers
A recent study showed that 71 percent of workers were optimistic about the job market, but that the country is approaching the threshold of recession. This is despite the fact that the unemployment rate remains low at 3.6%. The study also revealed that 66% of workers would actively seek a new job if their current employer cut their pay.

While the NBER committee's report does not include the unemployment rate, it did show that there were 528,000 new jobs created in July, up from 528,000 in June. The unemployment rate dipped to 3.5%, a level that is lower than it was in the first half of the year. Similarly, the number of unemployed workers has decreased by 3.3 million since January. This suggests that the recession is not as deep as many economists believe. Indeed, the job market in the United States has been defying skeptics time and again this year.

Federal Reserve raising rates to avoid a recession
The Federal Reserve is raising interest rates by 1.2 percentage points. It is arguing that it can achieve credibility on inflation and avoid a 1970s-style inflation. The Fed has raised rates before, but this time it is not raising them as quickly as it did in December 2015. The current federal funds rate is near three percent, and the Fed has indicated that it will continue raising rates until the economy is growing at a reasonable pace.

The Fed's track record is questionable, though. Eight of its nine tightening cycles have led to a recession. And the process of raising rates takes six to a year to take effect.