Weekly Recession Report — May 10, 2026

Weekly Recession Report — Week of May 10, 2026

This week’s dashboard sends a mixed but increasingly bifurcated message: the “soft” economy is deteriorating faster than the “hard” economy. Labor market real-time signals remain strong (initial claims 200K), financial conditions are still easy (Chicago Fed NFCI -0.51), and equities are near highs (S&P 500 ~7,399). But several classic recession-leading components—especially temporary help employment, freight activity, and consumer psychology—are flashing DANGER, indicating a widening downside tail risk even if a near-term recession is not yet the base case. The overarching risk: complacent markets + fragile households + tightening credit margins could turn a slowdown into something sharper if a shock hits (energy, geopolitics, credit event, or policy error).

Primary Indicators (highest signal value)

1) Industrial Production — 101.8 (WATCH)

Industrial output is stagnant at a level consistent with a goods-sector that is no longer expanding meaningfully. The Fed’s G.17 report shows industrial production fell 0.5% in March 2026, with the total index around the 101.8 level. (federalreserve.gov)
Interpretation: This is not a collapse—but it is a reminder that the factory side of the economy is not pulling the expansion forward. In late-cycle slowdowns, IP often weakens before payrolls.

2) Temporary Help Services — 2,485K (DANGER)

Temporary help is a high-frequency labor canary. When employers get cautious, they cut temps before cutting core staff. Your reading of 2,485K signals a meaningful downshift in labor demand at the margin.
Interpretation: This is one of the most recession-reliable labor leading indicators. If it continues falling while unemployment rises, recession odds can climb quickly—even if initial claims remain subdued for a while.

3) Unemployment Rate — 4.3% (WATCH)

At 4.3%, unemployment is still low historically, but the direction matters: “ticking up” typically does more work as a recession signal than the level itself.
Interpretation: Watch for confirmation via continuing claims, the Sahm Rule, and whether job losses broaden beyond cyclical pockets (manufacturing, transport, staffing).

4) Consumer Sentiment (University of Michigan, preliminary May) — 53.3 (DANGER)

The preliminary May reading is 53.3, which is consistent with crisis-level pessimism. (sca.isr.umich.edu)
Interpretation: Sentiment at this level usually implies consumers are bracing for worsening finances, job insecurity, and/or inflation stress. Even if spending doesn’t immediately collapse, low sentiment increases sensitivity to shocks and tends to pull forward precautionary behavior (trade-down, delay big-ticket purchases).

5) Initial Jobless Claims — 200K (SAFE)

Initial claims rose to 200,000 (week ending May 2, 2026), still near historic lows and below expectations in major coverage. (apnews.com)
Interpretation: This is the clearest “hard” counterweight to recession calls right now. Claims at 200K are not consistent with imminent widespread layoffs. The key is whether the floor holds or whether we begin a sustained uptrend (e.g., 4-week average rising for several weeks).

Secondary Indicators (confirmation and transmission channels)

Housing: permits softer, starts resilient

Building Permits: 1,363K (WARNING) — below trend and worth monitoring as the forward-looking housing indicator.
Housing Starts: 1,502K (SAFE) — starts jumped to 1.502M (reported March vs February), suggesting builders are still putting shovels in the ground. (tradingeconomics.com)

Interpretation: This is a classic split: starts can hold up due to pipeline dynamics and improving financing conditions, while permits soften when developers become more cautious about demand and affordability. If permits remain weak, starts typically follow with a lag.

Credit standards (SLOOS) — tightening is modest, not restrictive

SLOOS Lending Standards: 8.1% (WATCH) — consistent with the Fed’s characterization thresholds where net tightening in the 5–10% range is “modest.” (federalreserve.gov)

Interpretation: Modest tightening isn’t recessionary by itself. The risk is persistence: if modest tightening becomes moderate/significant while household buffers are thin, credit becomes an amplifier.

Conference Board LEI — mixed signal

Conference Board LEI: 1.7 (SAFE) (your reading), but note the Conference Board reported the LEI declined 0.6% in March 2026 to 97.3 (after a February increase). (conference-board.org)

Interpretation: LEI dynamics matter more than a single level—recent reported weakening argues for caution. If LEI continues to decline across multiple months, it will likely align with what temp help and freight are already suggesting.

Income, savings, and delinquencies: late-cycle household strain building

Personal Savings Rate: 3.6% (WARNING) — very low cushion.
Credit Card Delinquency: 2.9% (WATCH) — rising stress.
Household Debt Service Ratio: 11.3% (WATCH) — manageable but rising.

Interpretation: Households don’t need to be “broken” for consumption to slow. With savings low, any negative impulse (hours cuts, energy spike, rent jump) can reduce discretionary demand quickly.

Liquidity & Policy Indicators (fuel vs friction)

Fed policy stance: holds steady; stance appears accommodative relative to growth

Fed Funds (effective): ~3.6% (SAFE)
The Fed maintained the target range at 3.50%–3.75% at the April 29, 2026 meeting. (federalreserve.gov)

The Fed also highlighted that inflation is elevated, “in part reflecting the recent increase in global energy prices,” and noted elevated uncertainty tied to Middle East developments (per the April statement and materials around the meeting). (federalreserve.gov)

Interpretation: Policy is not the primary recession catalyst today—it’s more a stabilizer. But the bar for future easing may depend on whether inflation pressures (notably energy-linked) re-accelerate.

Reverse repo (ON RRP): near depletion

ON RRP Facility: $80B (WARNING) — “97% depleted” in your dashboard framing.

Interpretation: A depleted RRP can be consistent with liquidity migrating into other cash instruments and risk assets. It’s not automatically bearish, but it means one cushion/valve of money-market plumbing is much smaller than it was—important if a funding stress episode emerges.

Financial conditions: still easy

Chicago Fed NFCI: -0.51 (SAFE) — weekly reading -0.51 for May 1, 2026, updated May 6. (fred.stlouisfed.org)

Interpretation: Easy financial conditions help explain why equities remain strong even as soft data sours. Recessions usually require either a labor break or a meaningful tightening of financial conditions—neither is happening yet.

Market Indicators (risk appetite, pricing of downturn risk)

Equities: risk-on remains dominant

S&P 500: 7,399 (SAFE) — near record territory; market pricing suggests investors are not positioning for near-term recession.
Valuation signals: S&P P/E 22x (WATCH); NASDAQ P/E 30x (WATCH); tech/GDP ratios elevated (NASDAQ/GDP DANGER).

Interpretation: High valuations don’t cause recessions, but they raise fragility: if earnings expectations wobble or credit spreads widen, the equity market’s ability to “look through” weak data diminishes.

Volatility: calm

VIX: 17.1 (SAFE) — VIX around 17.08 in recent data snapshots. (cboe.com)

Interpretation: Low implied volatility suggests complacency. In late-cycle regimes, that can flip quickly if a macro catalyst hits (energy, geopolitics, credit event, or a sudden labor-market turn).

Credit: spreads not flashing red, but no longer “easy”

HY OAS: 320 bps (WATCH) — your reading implies moderately elevated spreads; recent public snapshots show HY OAS in the mid-2% range around early May. (ycharts.com)

Interpretation: The message is: credit is not stressed, but it’s not ultra-tight either. If temp help keeps falling and sentiment remains depressed, HY spreads are a key “confirmation channel” to watch.

Dollar: weakening trend

DXY: 96.5 (WATCH) — recent readings show DXY in the ~96–98 zone in early May. (dollarindex.org)

Interpretation: A softer dollar can help exporters and risk assets, but it can also reignite imported inflation at the margin—complicating the Fed’s ability to ease aggressively if growth slows.

Yield curve: modest steepening

2s10s: +0.48 (WATCH); 2s30s: +0.20 (WATCH) — curve is positive, consistent with “post-inversion” dynamics.

Interpretation: Historically, recession risk often rises after the curve uninverts, not before—because uninversion can occur as markets price future cuts due to slowing. This is a yellow flag, not a siren.

Conclusion & Outlook (next 4–12 weeks)

Base case: Slow growth / late-cycle wobble, not an immediate recession. The strongest evidence against a near-term recession remains initial claims at 200K and easy financial conditions (NFCI -0.51). (apnews.com)

But recession risk is rising because multiple leading components are deteriorating together:

Temp help (DANGER) suggests employers are already tightening staffing at the margin.
Freight (DANGER) signals the goods economy is weakening.
UMich sentiment at 53.3 (DANGER) implies households are psychologically—and likely financially—fragile. (data.sca.isr.umich.edu)

What would move the dashboard meaningfully next week:

Claims trend: a sustained move above ~220K–250K would materially change the labor narrative (not there yet).
Credit spreads: HY OAS moving decisively wider would indicate markets are finally pricing slower growth.
Permits vs starts: continued permits weakness would point to a housing downshift later this summer.
Temp help stabilization: if temp employment stops falling, recession odds drop quickly.

RecessionPulse takeaway: The economy still has supportive liquidity and market conditions, but the leading edges of labor and demand are weakening. Maintain a cautious stance: recession is not “here,” but the probability of a downside break is no longer low—especially given thin household buffers and the potential for shock transmission through credit and confidence.

If you want, I can convert this into a standardized RecessionPulse scorecard table (SAFE/WATCH/WARNING/DANGER counts and a composite risk score) and add “what changed vs last week” deltas—if you share last week’s readings.