With all the concern about recession at the national level due to the inversion of the yield curve it seemed a natural thing to take a look at the circumstances in North Dakota when the curve inverts. The results are a bit puzzling and will require some further thought before finalizing them.
Looking at the 10-2 spread and the total income for North Dakota since 1976 gave me a few opportunities to look at inversion and state performance in this regard. I varied the time horizon between 4 and 8 quarters after the yield curve inverted. On average the annual percentage change in total income in the four quarters after a positive 10-2 spread is around 2 percent. for the four quarters after the yield curve inverted it is almost 9 percent.
If we extend it out to eight quarters the results are a bit different but the relative position is the same. The state economy does better after an inverted yield curve. Some possible reasons for this include the low unemployment environment, the specific sectors in the state economic portfolio, of that the state is actually somewhat countercyclical to US patterns.
I need to look at some different growth calculations and horizons, some specific sector analysis, and then some spread and inversion definitions to see if this is robust.
