Concerns about the “R-word” — recession — have somewhat tempered Dayton officials’ excitement about significant growth in revenues and income tax collections.
Indicators like the U.S. Treasury yield curve suggest a downturn could be on the horizon, said Diane Shannon, Dayton’s director of procurement, management and budget earlier this month.
“Economists don’t typically like to forecast recessions — but it’s interesting, because this time around, they are starting to,” Shannon said.
The city of Dayton is having a good economic year.
Half way through 2018, general fund revenues were up 5.7 percent, or $4.9 million, compared to 2017. Expenditures were $1.3 million under budget.
Income tax collections were up 5.2 percent, not counting the additional revenue from the city’s tax increase.
The city expects to end 2018 with a balanced budget and will not have to use its cash reserves as originally anticipated, officials said.
But at finance committee briefing earlier this month, city officials said they are worried that the U.S. economy could enter a recession in the not-too-distant future.
The national economy has been on a tear. The current economic expansion is the second-longest on record and would break the record next year. The record (an uninterrupted decade of growth) was set during the 1990s tech boom.
But that’s what’s worrying city leaders and officials. If history is any guide, the growth can’t last forever, they said.
Some of the concern owes to the U.S. Treasury yield curve, which is a powerful indicator of a recession, said Shannon, with the city of Dayton.
The yield curve is essentially the difference between interest rates on short-term U.S. government bonds and long-term bonds, like 10-year Treasury notes, according to the New York Times.
The gap between short-term and long-term interest rates has been shrinking, the Times reported.
Not every yield curve has led to a recession. But every recession has had an inverted yield curve preceding it, Shannon said.
“There’s a joke that an inverted yield curve has predicted eight of the last six recessions,” she said.
Some believe the fears of a recession could become a self-fulfilling prophecy..
That may be true “because a lot of it has to do with business and consumer confidence,” Shannon said.
Everyone is talking about the possibility of a recession, said Dayton Mayor Nan Whaley.
She said bad policy would be more likely the cause of a recession — not people talking themselves into it.