Slow Economic Growth For Next Year Along With A Slight Increase of Recession Predicted From Treasury Yield Curve: Federal Reserve Bank of Cleveland

US Treasury yield curve predicts slow economic growth over the coming year of 0.6 percent and a slight increase in the chance of a recession next year to 11.9 percent.

From Federal Reserve Bank of Cleveland, "Yield Curve and Predicted GDP Growth, July 2012" by Joseph G. Haubrich and Patricia Waiwood, August 2, 2012:

Covering June 23, 2012–July 27, 2012

	July	June	May
3-month Treasury bill rate (percent)	0.10	0.09	0.09
10-year Treasury bond rate (percent)	1.47	1.64	1.74
Yield curve slope (basis points)	137	155	165
Prediction for GDP growth (percent)	0.6	0.6	0.7
Probability of recession in 1 year (percent)	11.7	9.7	8.7

***The Yield Curve as a Predictor of Economic Growth
The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year, and yield curve inversions have preceded each of the last seven recessions (as defined by the NBER). One of the recessions predicted by the yield curve was the most recent one. The yield curve inverted in August 2006, a bit more than a year before the current recession started in December 2007. There have been two notable false positives: an inversion in late 1966 and a very flat curve in late 1998.

More generally, a flat curve indicates weak growth, and conversely, a steep curve indicates strong growth. One measure of slope, the spread between ten-year Treasury bonds and three-month Treasury bills, bears out this relation, particularly when real GDP growth is lagged a year to line up growth with the spread that predicts it.