Warning Signs of a Hard Landing: Economic Indicators Flashing Red

Why we are LATE CYCLE – not Early Cycle!

The global economy is at a critical juncture where hopes for a "soft landing" are fading. A soft landing refers to cooling inflation and slowing growth without an actual recession, but multiple indicators now suggest that a hard landing – an outright recession – is increasingly likely. In the United States, in particular, we are seeing a confluence of warning signs reminiscent of previous pre-recession periods. From sinking consumer confidence and a historically inverted yield curve to surging housing inventories and faltering consumer spending, the data paints a cautionary picture. In this report, we examine several key charts and economic indicators that, together, signal an imminent turn in the business cycle toward a downturn.

Consumer Confidence at Lows and Unemployment Set to Rise

One of the clearest signals of economic stress comes from consumer sentiment. The University of Michigan’s Consumer Sentiment Index has plunged to 58.2 as of August 2025, after a brief uptick earlier in the year. This level of confidence is extremely low – comparable to the troughs seen during past recessions – indicating that households are increasingly pessimistic about economic conditions. Historically, such depressed sentiment tends to precede rising unemployment and economic contraction as wary consumers pull back on spending.

Figure: University of Michigan Consumer Confidence (blue line, left axis) versus the number of unemployed persons (red line, right axis, inverted) in the U.S., with recessions shaded in gray. Consumer confidence is near multi-decade lows (around 58), while unemployment (currently very low) is poised to spike upward, as indicated by the divergence and the question mark annotation.

The chart above juxtaposes consumer confidence (blue line) with the unemployment level (red line, inverted). The red line is plotted inversely, so when it falls, actual unemployment is rising. A clear pattern emerges: whenever confidence collapses to low levels, unemployment soon jumps and a recession follows. For example, in the early 1990s and again in 2008, sentiment plunged and shortly thereafter unemployment surged (red line plummeting on the inverted scale) as the economy fell into recession. Now, consumer sentiment is deeply depressed – not far from its all-time low – signaling that consumers are bracing for tough times. Unemployment has not risen sharply yet, but it has ticked up slightly (the number of unemployed has increased to ~7.4 million, up by ~150,000 recently). The black arrow and “Spike in Unemployment?” label on the chart suggest that a sharp rise in joblessness could be imminent. In essence, consumers are flashing a warning: their gloom often foreshadows businesses retrenching and layoffs mounting. This indicator implies the labor market’s resilience may soon falter as the economy shifts downward.

Yield Curve Inversion and Fed Policy: Soft vs. Hard Landing Scenarios

Another powerful leading indicator for recessions is the yield curve – specifically, the spread between long-term and short-term interest rates. In normal times, long-term yields are higher than short-term yields, but before recessions this relationship often flips (short rates above long rates), creating an inverted yield curve. Such inversions have preceded each of the last several recessions, reflecting expectations that the central bank will cut rates in the near future due to economic weakness. The depth and duration of the recent inversion in U.S. Treasury yields has been unprecedented in modern history, raising concern that a recession is on the horizon despite optimistic "soft landing" hopes.