Economics Analysis

US Economics Analysis

⚠️ Data Verification — Do This Before Any Analysis

Before running any analysis, always retrieve the latest market data for the ticker:

1. Fetch current price — use web search or ask the user for the live price, 52-week range, and market cap. Never assume a price from training data.
2. Confirm key figures — recent earnings, revenue, key ratios (P/E, P/S, etc.) as applicable to this skill.
3. State your data source — note where the numbers came from (e.g., "Google Finance, June 19 2026") at the top of the output.
4. Flag stale data explicitly — if live data is unavailable, display this warning before proceeding:

> ⚠️ Live data unavailable. The following analysis uses training-data estimates which may be significantly out of date. Verify all prices and metrics before making any decisions.

Never silently substitute training-data estimates for current prices. When in doubt, ask the user to paste the latest quote.

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Analyze US economic conditions and their implications for investment decisions.

Key Economic Indicators

1. Growth Indicators

• GDP growth rate and components
• Employment data (NFP, unemployment rate, jobless claims)
• Consumer spending and retail sales
• Manufacturing and services PMI

1. Inflation Metrics

• CPI (Consumer Price Index)
• PCE (Personal Consumption Expenditures)
• PPI (Producer Price Index)
• Wage growth trends

1. Monetary Policy

• Federal Reserve policy stance
• Interest rates (Fed Funds rate, Treasury yields)
• Money supply and bank lending
• Fed meeting minutes and forward guidance

1. Market Sentiment

• Consumer confidence indices
• Business sentiment surveys
• Credit spreads and risk indicators
• Market volatility (VIX)

1. Fiscal Policy

• Government spending and stimulus programs
• Tax policy changes
• Budget deficit and debt levels

Analysis Framework

• Identify current economic cycle phase
• Assess policy implications for different sectors
• Evaluate recession/expansion risks
• Determine impact on equity, bond, and commodity markets
• Provide sector rotation recommendations

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Yield Curve Analysis

Key Spreads to Monitor

| Spread | Definition | Current | 1-Year Avg | 10-Year Avg | Signal | |---------|-------------------------------------|---------|------------|-------------|--------| | 2s10s | 10yr Treasury minus 2yr Treasury | | | | | | 3M10Y | 10yr Treasury minus 3-Month T-Bill | | | | | | 5s30s | 30yr Treasury minus 5yr Treasury | | | | |

3M10Y is the historically strongest recession predictor (NY Fed model is based on this spread).

Yield Curve Shapes

| Shape | Description | Economic Implication | |-----------------|-------------------------------------------------|-------------------------------------------------------| | Normal (Steep) | Long-term rates well above short-term rates | Healthy growth expectations, bank margins expanding | | Flat | Short and long-term rates near parity | Late-cycle signal, growth slowing, Fed near peak | | Inverted | Short-term rates above long-term rates | Recession warning — markets pricing in rate cuts ahead| | Bear Steepening | Both ends rise, long end rises faster | Inflation concern, term premium expanding | | Bull Steepening | Both ends fall, short end falls faster | Cutting cycle underway, growth relief expected |

Inversion Duration and Recession Lead Time

Historical precedent for 3M10Y inversion:

| Inversion Duration | Historical Recession Lead Time | |--------------------|-------------------------------| | 12 months | High confidence; within 12 months |

Rule of thumb: Yield curve uninversion (re-steepening after inversion) is often the more immediate warning — recession tends to arrive shortly after the curve re-steepens from inversion.

Fed Rate Cycle Positioning

• Hiking Cycle: Fed raising rates — short end rises faster, curve flattens/inverts. Growth stocks under pressure.
• Pause: Fed on hold — curve stabilizes. Markets watch for pivot signals.
• Cutting Cycle: Fed reducing rates — short end falls faster, curve steepens. Risk-on environment, cyclicals and growth stocks benefit.

Real Yields (TIPS) Analysis

• Real Yield = Nominal Treasury Yield − Breakeven Inflation Rate (derived from TIPS)
• Rising real yields: Tighten financial conditions. Negative for long-duration assets (growth stocks, gold, long bonds).
• Falling real yields: Easier financial conditions. Positive for growth stocks, gold, emerging markets, long bonds.
• 10-Year Real Yield thresholds: Below 0% is historically accommodative; above 2% is meaningfully restrictive.
• Breakeven inflation (5-year, 5-year forward): Market's long-run inflation expectation. Persistently above 2.5% signals inflation concern.

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Credit Market Indicators

Investment Grade (IG) Credit Spreads (OAS — Option-Adjusted Spread)

| Spread Level | Condition | Interpretation | |----------------|------------|----------------------------------------------------| | 150 bps | Stress | Credit markets seizing, risk-off, watch equities |

High Yield (HY) Credit Spreads

| Spread Level | Condition | Interpretation | |----------------|------------|------------------------------------------------------------| | 500 bps | Distress | Recession/financial stress scenario, significant HY risk | | > 800 bps | Crisis | Systemic credit event risk, similar to 2008/2020 episodes |

Rule: HY spreads lead equity markets by 2–4 weeks on average. Widening HY spreads while equities hold = warning signal.

TED Spread

• Definition: 3-Month LIBOR (now SOFR) minus 3-Month T-Bill yield
• Measures interbank lending stress and counterparty risk appetite in the banking system
• Normal: 100 bps (peaked at ~450 bps during 2008 GFC)

MOVE Index (Bond Market Volatility)

• Bond market equivalent of VIX — measures implied volatility in US Treasury options
• Normal: 80–100
• Elevated: 100–130 (policy uncertainty, high rate volatility)
• Crisis: > 150 (1994, 2008, 2020, 2023 banking crisis)
• High MOVE compresses equity valuations by increasing discount rates unpredictably.

Credit as a Leading Indicator

• IG/HY spread widening before equity weakness is a leading warning (credit sees risk first)
• Spread compression while equities lag = catch-up potential, constructive signal
• IG vs. HY divergence: If HY widens but IG holds, idiosyncratic credit stress — watch lower-quality equities
• Leveraged loan market: CLO issuance and leveraged loan spreads reflect private credit conditions

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Global Macro Comparison

Economic Cycle Positioning (US vs. EU vs. China)

| Economy | Current Phase | GDP Growth | Inflation | Policy Stance | Equity Implication | |----------------|-----------------------|------------|-----------|---------------|-----------------------------| | United States | | | | | | | Eurozone | | | | | | | China | | | | | | | Japan | | | | | | | UK | | | | | |

Economic cycle phases: Early Expansion → Mid Expansion → Late Expansion → Contraction → Recovery

PMI Comparison Across Major Economies

| Country/Region | PMI Index | Last Reading | Trend | Above/Below 50 | |----------------|--------------|--------------|-------------|----------------| | US | ISM Mfg | | | | | US | ISM Services | | | | | Eurozone | Markit Mfg | | | | | Eurozone | Markit Svcs | | | | | China | Caixin Mfg | | | | | China | Official PMI | | | |

Rule: PMI above 50 = expansion; below 50 = contraction. Composite PMI below 48 for 2+ months is recessionary signal.

Central Bank Divergence Analysis

| Central Bank | Current Rate | Last Move | Next Expected Move | Cycle Phase | |--------------|-------------|-------------|-------------------|-------------| | Federal Reserve (Fed) | | | | | | European Central Bank (ECB) | | | | | | Bank of Japan (BOJ) | | | | | | Bank of England (BOE) | | | | | | People's Bank of China (PBOC) | | | | |

Divergence signals:

• Fed tightening while ECB/BOJ easing → USD strengthens, EM currencies weaken
• Synchronized easing → Global risk-on, EM outperforms, commodities bid
• BOJ policy normalization → JPY strengthens, unwinds carry trades

Dollar (DXY) Strength and Sector Impact

| DXY Direction | US Multinational Earnings | Commodities | Emerging Markets | Domestic US Small-Caps | |---------------|--------------------------|-------------|-----------------|------------------------| | Strengthening (rising DXY) | Headwind (FX translation) | Bearish | Bearish (USD-denominated debt stress) | Relative outperform | | Weakening (falling DXY) | Tailwind | Bullish | Bullish | Relative underperform |

• DXY above 105: Meaningful headwind for S&P 500 multinationals (roughly 40% of S&P revenues are foreign)
• DXY below 95: Significant tailwind, boosts international earnings in USD terms

Emerging Market Vulnerability Indicators

• EM FX pressure: Current account deficits + elevated external USD debt = vulnerable to dollar strength
• EM Debt Stress Index: Sovereign spread widening in EM bonds (EMBI+ spread)
• Capital outflow risks: Rate differential between US and EM narrows during Fed cutting cycles — can reverse
• China contagion risk: Property sector stress, credit impulse, and stimulus effectiveness
• Commodity-exporting EMs: Benefit from commodity supercycles; inversely, hurt by USD strength

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Recession Probability Scoring

New York Fed Recession Model

Based on the 3M10Y yield curve spread, the NY Fed publishes a monthly recession probability for the next 12 months.

| Probability Range | Interpretation | |-------------------|-----------------------------------------------| | 0–10% | Expansion — very low recession risk | | 10–25% | Low risk — monitor indicators | | 25–50% | Elevated — caution warranted | | 50–75% | High risk — recession likely within 12 months | | > 75% | Near-certain — defensive positioning required |

Current NY Fed reading: ____%

Conference Board Leading Economic Index (LEI)

The LEI composite combines 10 leading indicators across financial markets, labor, manufacturing, and consumer expectations.

• Consecutive monthly declines (3+): Strong recession warning
• Year-over-year decline > 4%: Historically aligned with recessions
• LEI component breakdown: Manufacturing hours, building permits, consumer expectations, credit spread, yield curve, stock prices, initial jobless claims

Current LEI trend: Rising / Flat / Declining

Sahm Rule

Sahm Rule Indicator = Current 3-month average unemployment rate minus the minimum of the 3-month average unemployment rate over the prior 12 months.

• Threshold: ≥ 0.5 percentage points = Real-time recession signal with high historical accuracy
• Triggered in every US recession since 1970
• Works in real-time without revision lag that affects other indicators

Current Sahm Indicator reading: ____

Custom Composite Recession Probability

Scoring model combining: Yield curve signal + LEI trend + Sahm Rule + Credit spreads + PMI momentum

| Zone | Score Range | Interpretation | |----------------|--------------|-------------------------------------------------------| | Expansion | 0–25% | Risk-on appropriate; cyclicals, growth outperform | | Caution | 25–50% | Balanced positioning; reduce cyclical overweights | | High Risk | 50–75% | Defensive rotation; increase quality, reduce leverage | | Near-Certain | 75–100% | Full defensive posture; cash, defensives, short vol |

Historical recession episodes and leading indicators:

| Recession | Yield Curve Inversion | LEI Decline | Sahm Trigger | S&P 500 Peak-to-Trough | |---------------|-----------------------|-------------|--------------|------------------------| | 2001 (Dot-com) | 2000 | Yes | Yes | −49% | | 2008 (GFC) | 2006–2007 | Yes | Yes | −57% | | 2020 (COVID) | 2019 | Yes | Yes | −34% | | 2022–2023 | 2022–2023 | Yes | No (so far) | −25% (bear market) |

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Output

Deliver concise economic assessment with:

• Current economic state summary
• Key risks and opportunities
• Sector and asset class implications
• Investment positioning recommendations

Standard Signal Output

All analysis concludes with this standardized block:

## Thesis Invalidation

After delivering the analysis signal, specify what would reverse it:

**If signal is BULLISH — thesis breaks if:**
- Price closes below the MA200 / key support level identified in this analysis on above-average volume
- yield curve inverts >50bps AND leading indicators fall for 3 consecutive months
- Macro regime shift: Fed pivots hawkish unexpectedly, recession probability >60%

**If signal is BEARISH — thesis breaks if:**
- Price closes above key resistance / MA200 level with volume confirmation
- yield curve normalizes AND PMI recovers above 52 for 2+ months
- Fundamental improvement: surprise earnings beat >20% with guidance raise

**Re-run this analysis when:**
- [ ] Next earnings release
- [ ] Price moves ±15% from current level
- [ ] 60 days have elapsed
- [ ] Material news event (acquisition, leadership change, regulatory decision)

╔══════════════════════════════════════════════╗
║              INVESTMENT SIGNAL               ║
╠══════════════════════════════════════════════╣
║ Signal:      BULLISH / NEUTRAL / BEARISH     ║
║ Confidence:  HIGH / MEDIUM / LOW             ║
║ Horizon:     SHORT / MEDIUM / LONG-TERM      ║
║ Score:       X.X / 10                        ║
╠══════════════════════════════════════════════╣
║ Action:      BUY / HOLD / SELL               ║
║ Conviction:  STRONG / MODERATE / WEAK        ║
╚══════════════════════════════════════════════╝

Score Guide: 8.0–10.0 Strongly Bullish | 6.0–7.9 Moderately Bullish | 4.0–5.9 Neutral | 2.0–3.9 Moderately Bearish | 0.0–1.9 Strongly Bearish Confidence: HIGH (strong data, clear signals) | MEDIUM (mixed signals) | LOW (limited data, conflicting signals) Horizon: SHORT-TERM (1 week–3 months) | MEDIUM-TERM (3 months–1 year) | LONG-TERM (1+ years)

Source & license

This open-source skill is cataloged on AgentStack and links to its original source — we do not rehost the code.

• Author: yennanliu
• Source: yennanliu/InvestSkill
• License: MIT
• Homepage: http://yennj12.js.org/InvestSkill/

Install and usage instructions live in the source repository linked above.