The Blubber

JPMorgan economists are warning clients that a series of indicators suggest the U.S. economy and stocks may falter in the coming months, despite growing hopes that the country may avoid a recession. In a Monday note, the bank's analysts led by Mislav Matejka highlight several warning signs. For example, the heavily inverted yield curve has preceded every U.S. recession over the past 50 years, and is currently the most inverted it has been since the 1980s. The analysts caution that the U.S. money supply has also fallen abruptly and is negative on a yearly basis for the first time since 2006. Banks have started to enforce stricter lending standards, leading to a decline in credit demand typical ahead of past recessions.

The analysts write that the damage is already done, and the fallout is likely still ahead. They note that the Federal Reserve's aggressive interest rate hikes over the past year could take up to two years to ripple across the economy. Mortgage payments as a share of income have doubled from 13% to 26% and the savings rate has plummeted to almost zero. Despite these warning signs, others remain much more upbeat. Last week, Goldman economists led by Jan Hatzius put the odds of a recession at just 25%, reflecting continued strength in the labor market after a blockbuster jobs report and early signs that businesses are becoming more optimistic about the economy.