Weekly Recession Report — May 17, 2026

Weekly Recession Report — Week of May 17, 2026

This week’s dashboard continues to paint a two-speed economy: market-based and liquidity indicators remain broadly supportive of continued expansion, while consumer psychology and select labor-market leading signals are flashing louder caution. The most recession-relevant tension is between (1) still-low layoffs and easy financial conditions and (2) sharp deterioration in cyclical “early warning” series like temporary help and freight, alongside crisis-level consumer sentiment. Net: recession risk is not imminent in the very near term (claims/yield curve/Sahm rule remain calm), but vulnerability is rising if hiring freezes spread and consumer weakness persists into summer.

Primary Indicators (highest signal-to-noise)

Industrial Production — SAFE (102.5)

Your SAFE Industrial Production Index at 102.5 indicates output is still expanding. In recession setups, production typically rolls over alongside hiring; we aren’t seeing that broad rollover in the headline production measure yet.
Interpretation: production is not confirming the “freight + temp help” warning cluster (see below), which argues for slower growth rather than an immediate contraction.

Labor Market: Unemployment Rate + Sahm Rule — WATCH / SAFE

Unemployment Rate: 4.3% (WATCH) — ticking up, consistent with a cooling labor market.
Sahm Rule: 0.13 (SAFE) — still far below the recession trigger. This remains one of the strongest “all clear” signals on your board.
Interpretation: the labor market is softening, but it has not transitioned into the self-reinforcing job-loss dynamic typical of recession.

Jobless Claims — SAFE (211K)

Initial claims: 211,000 (week ending May 9) rose by ~12k but remain historically low; continuing claims also edged up to ~1.782M (week ending May 2). (apnews.com)
Interpretation: layoffs remain contained, supporting the “soft landing / slowdown” baseline for now. The direction bears watching, but the level is not recessionary.

Yield Curve (2s10s) — SAFE (+0.50)

A positive 2s10s spread is a meaningful improvement versus inversion regimes that often precede recessions. It reduces the probability of “policy too tight for too long” being the near-term trigger.
However, your curve set includes 2s30s steepening (WATCH), which can occur when markets anticipate Fed cuts (sometimes because growth is weakening).

Secondary Indicators (growth + labor internals)

JOLTS Quits Rate — WATCH (2.0%)

BLS reports quits rate at 2.0% (little changed), consistent with moderating worker bargaining power versus prior-cycle peaks. (bls.gov)
Interpretation: quits at 2.0% fits a “cooling but functioning” labor market. It’s not a recession signal by itself, but it aligns with slower wage pressure and more cautious households.

Manufacturing Employment — WATCH (12.6M)

Below-trend manufacturing employment typically amplifies cyclicality when demand slows. This is consistent with your broader “goods economy” weakening signals (freight, copper/gold).

Real Personal Income ex Transfers — WATCH ($16.7T annualized)

Income is the bridge between “soft” consumer sentiment and “hard” consumer spending. With sentiment already depressed, any downshift in real income momentum would materially raise recession risk.

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

This is one of the most important early-cycle labor demand signals. Temp help often turns before broader payrolls because firms cut flexible labor first.
A “sharp decline” at 2.485M is a meaningful recession-leading warning—especially when paired with quits cooling and a rising unemployment rate.

Freight Transportation Index — DANGER (1.5)

Freight weakness indicates softness in the goods pipeline (orders → production → shipments). This often shows up before broad services employment cracks.
When freight and temp help fall together, it raises the likelihood that the economy is moving from “cooling” into “downshift.”

GDP / Nowcasts — WATCH

GDP Growth: 2.0% QoQ SAAR (WATCH) suggests slowing but not stalling.
Your Atlanta Fed GDPNow: 1.8% (WATCH) is consistent with “below-trend growth,” though note the Atlanta Fed updates can move quickly with incoming data. (The Atlanta Fed’s posted commentaries show materially different estimates earlier in May, underscoring volatility in nowcasts.) (atlantafed.org)
Interpretation: growth is decelerating, and the balance of leading data implies downside risk to real activity into mid-2026.

Conference Board LEI — SAFE (1.7)

The Conference Board’s LEI has been volatile recently; their published updates highlighted meaningful monthly declines earlier this spring. (conference-board.org)
If your internal LEI composite is positive at 1.7, it’s an important counterweight to the “DANGER” cluster. The key question: is that positivity being driven by markets/financial variables while real-economy components weaken?

Liquidity & Credit Indicators (transmission mechanism)

Fed Funds Rate — SAFE (3.6%)

The effective fed funds rate around 3.6% implies policy is no longer as restrictive as it was at the peak of this cycle; the Fed held its target range at 3.50%–3.75% after the April 29, 2026 meeting, with interest on reserve balances at 3.65% effective April 30. (federalreserve.gov)
Interpretation: monetary policy is not obviously “choking off” the economy at this level—supportive for the soft-landing case.

Lending Standards (SLOOS) — WATCH (8.1% tightening)

Your reading: net 8.1% tightening (modest but rising). Recession risk rises when tightening becomes broad-based and persistent.
The direction (up from earlier lows) matters: credit tightening typically hits capex and hiring with a lag. (recessionpulse.com)

Household Stress: Delinquencies, DSR, Savings — WATCH/WARNING

Credit card delinquency: 2.9% (WATCH) and debt service ratio: 11.3% (WATCH) suggest rising—but not yet acute—household stress.
Personal savings rate: 3.6% (WARNING) is the bigger macro vulnerability: it implies a thin shock absorber if labor income weakens or energy costs rise.

Money Supply (M2) — WATCH ($22.7T)

Level alone matters less than trend/YoY and the private-credit impulse. With markets strong and NFCI loose, liquidity conditions appear supportive, but the watch item is whether bank credit creation is slowing.

ON RRP Facility — WARNING ($647M; essentially depleted)

A near-depleted ON RRP can mean excess cash has been absorbed elsewhere (T-bills/banks). In benign cases it reflects normalizing plumbing; in stressed cases it can reduce a “buffer” and increase sensitivity to funding shocks.

Bank Unrealized Losses — WARNING (~$5.155T)

Large unrealized losses are a structural fragility: they don’t cause recessions on their own, but they can accelerate downturn dynamics if a liquidity event forces asset sales and tightens credit.

Fiscal Constraints — WARNING/DANGER

US interest expense: ~$1.219T/yr (WARNING) and national debt: $38.5T (DANGER), with debt-to-GDP: 123% (WARNING). These raise the odds that future downturn policy response is less flexible and more inflation/term-premium sensitive.

Market Indicators (risk appetite vs macro reality)

Equity Levels / Valuation — SAFE/WATCH/WARNING/DANGER mix

Index levels remain near highs: S&P 500 7409, Dow 49,526, NASDAQ 26,225 (SAFE).
But valuation and “market cap vs GDP” style ratios are flashing caution:
- S&P 500 P/E: 22x (WATCH)
- NASDAQ P/E: 30x (WATCH)
- NASDAQ/GDP: 0.823 (DANGER) and S&P 500/GDP (WARNING)
Interpretation: markets are pricing continued disinflation + benign growth, leaving less cushion if the real economy weakens or risk premia reprice.

Financial Conditions / Credit Spreads — SAFE

Chicago Fed NFCI: -0.52 (SAFE) indicates loose conditions. (recessionpulse.com)
High yield OAS: 276 bps (SAFE) — tight spreads signal risk-on credit markets and low near-term default pricing.
Interpretation: markets are not behaving as though recession is imminent.

Volatility — SAFE (VIX 17.3)

Low volatility indicates complacency/risk appetite. This is supportive for near-term activity via wealth effects, but it can amplify downside if a shock hits.

Sentiment — DANGER (UMich 53.3)

Consumer sentiment at 53.3 is crisis-like pessimism. This matters because sentiment often leads discretionary spending, household formation, and big-ticket purchases.
With savings low, sentiment that depressed can translate into real demand weakness even without a spike in layoffs.

Copper-to-Gold & Gold/Silver — DANGER / WARNING

Copper-to-gold: 0.00077 (DANGER) and gold-to-silver: 85 (WARNING) both align with a “growth fear / safety bid” signal from commodities—i.e., the real economy is weaker than equity indices imply.

Conclusion & Outlook

Base case (next 1–3 months): Slow growth, not recession. The absence of layoff stress (claims at 211k) (apnews.com), a non-inverted 2s10s curve, loose NFCI (-0.52) (recessionpulse.com), and tight credit spreads collectively argue that recession is not the immediate path.

Key risk (next 3–9 months): the recession probability rises if the DANGER cluster spreads from “early warning” series into the broader labor market:

Temp help contraction (2.485M) and freight weakness are classic precursors.
Consumer sentiment (53.3) plus low savings (3.6%) increases the odds that consumption slows sharply if hiring cools further.
Tightening lending standards (8.1%) can act as an accelerator if it continues to climb. (recessionpulse.com)

What to watch next week (high-frequency checkpoints):

Initial & continuing claims trend (does the 4-week average turn up decisively?).
Temp help / hours worked (are firms cutting labor utilization beyond flexible staffing?).
Credit stress (delinquencies and small business financing conditions).
Consumer inflation expectations + gas/energy shocks (sentiment is already fragile; any price spike can hit real demand fast).

Overall recession risk for this week remains moderate and rising, with labor leading indicators and consumer psychology the primary sources of concern—while the market and liquidity backdrop continues to delay (or potentially prevent) a near-term downturn.