“Bob Dieli, (nospinforecast.com) an economist has for the last couple of decades put forward this idea that is in line with the FT Money concept. Economies do not just stall and go into a recession. Economies have a maximum "speed limit" and Central Banks clamp down on this limit to cause recessions. He has developed the following simple concept:
“Aggregate Spread = Financial Spread - Real Economy Spread.
Financial Spread = 10 year yield - Fed Funds Rate
Real Economy Spread = Inflation Rate - Unemployment Rate
“His ideas were developed more than 20 years ago so we have forward real time data on how his idea works. It works pretty well. The Aggregate Spread usually falls below 200 before the economy goes into recession.
“Both the simple formula and all the data to compute it are publicly available. Could you kindly construct the Financial Spread, the Real Economy Spread and the Aggregate Spread chart and make it available in the chart library? I think most of the charts from which these spreads need to be created are already in the chart library. It would be nice to have the three spread charts made up and available in one place. Thank You.”
Eoin Treacy's view Thank you for highlighting these interesting spreads. I cannot add new data series to the Chart Library while we test our new data feed and the infrastructure surrounding it. This process should be complete in the next couple of weeks and I will then add the remaining spreads and other instruments which have been requested by subscribers.
In the meantime, I have added the Financial spread and here are charts for both the Real Economy spread and the Aggregate Spread. Veteran subscribers will be familiar with the shape of the Aggregate spread which bears a striking resemblance to the yield curve spread (10yr - 2yr Treasury yield) at major turning points. In both cases a negative value has acted as a lead indicator of recession.