The scorecard indicators remain mixed, including a shift in the yield curve indicator. The government shutdown has limited employment data, confirming a cautious investment approach is needed, as ongoing policy and trade shifts affect the economy.
October 9, 2025
Jim Allworth Investment StrategistRBC Dominion Securities
Once again, the U.S. Recession Scorecard remains at an indecisive setting, as it has for several quarters running. However, there is one change of note: the yield curve indicator has shifted back to neutral Yellow from recessionary Red. Meanwhile, the government shutdown has already removed current employment data – unemployment claims and the unemployment rate – from view, and that potentially means there won’t be a “clean” read from any of our indicators (except the yield curve and ISM) perhaps into next year.
In our view, the mixed state of the scorecard indicators argues for a watchful portfolio investment approach, particularly in a world where policy is very much in flux and the effects of ongoing trade shifts are still not yet visible.
Status
Indicator
Expansionary
Neutral/Cautionary
Recessionary
Yield curve (10-year to 1-year Treasuries)
Federal funds rate vs. nominal GDP growth
Unemployment claims
Unemployment rate
ISM New Orders minus Inventories
Conference Board Leading Economic Index
Non-financial corporate cash flow
Source – RBC Wealth Management
The table shows seven U.S. economic indicators and their current statuses: Expansionary (green), Neutral/Cautionary (yellow), or Recessionary (red). Non-financial corporate cash flows is currently the only indicator in the Expansionary category. Four indicators are in the Neutral/Cautionary category: Yield curve (10-year to 1-year Treasuries), Unemployment claims, Unemployment rate, and ISM New Orders minus Inventories. The remaining two indicators, Federal funds rate versus nominal GDP growth and Conference Board Leading Economic Index, are in the Recessionary category.
Shifting to Neutral. Short-term Treasury yields – in this case, the market yield on the one-year T-bill – fell below the 10-year yield back in Dec. 2024, reverting the yield curve to its normal shape in the process. Despite that, we left this indicator in the recessionary Red column for the past nine months because typically in past cycles, when such a crossing point has occurred – usually in response to the start of Fed rate cutting – the recession arrives anyway.
However, in this instance, the Fed cut three times in Q4 of last year. Changes in monetary policy are thought to act with a lag of six to 12 months, so we are now in the window when the effect of those rate cuts should be showing up as some visible improvement in the economic backdrop. Better-than-expected consumer spending in the summer and strengthening new orders for capital goods by business suggest that may be happening.
We are shifting this indicator into the neutral Yellow column.
Reaffirmed at Red. Before every recession, the federal funds rate has managed to climb higher than the annualised run rate of nominal GDP (that is, GDP not adjusted for inflation). That occurred briefly in the summer of last year, just before the Fed began cutting rates. Flagging GDP growth has once again put that condition in place, reaffirming its reading at recessionary Red.
Unchanged at Yellow. It was quiet before the shutdown, as it has been for quite some time.
Tariff distortion clouds the picture. This is another indicator that should not be directly affected by the shutdown. However, it currently remains trendless. We’ve also left this at Yellow.
The long slide continues. The LEI, down again in August, has now declined in 40 of the past 44 months. It has never reached these levels in the past without a recession arriving. It remains firmly in the Red column.
Last Green standing. This measure of the capability of non-financial businesses in aggregate to self-fund capital expansion has always declined as a percentage of GDP before or just after a recession got underway. While it has not done so yet after the Q2 data release in September, this data is reported with a long, three-month lag. The next release, hopefully, is in December.
The material herein is for informational purposes only and is not directed at, nor intended for distribution to or use by, any person or entity in any country where such distribution or use would be contrary to law or regulation or which would subject Royal Bank of Canada or its subsidiaries or constituent business units (including RBC Wealth Management) to any licensing or registration requirement within such country.
This is not intended to be either a specific offer by any Royal Bank of Canada entity to sell or provide, or a specific invitation to apply for, any particular financial account, product or service. Royal Bank of Canada does not offer accounts, products or services in jurisdictions where it is not permitted to do so, and therefore the RBC Wealth Management business is not available in all countries or markets.
The information contained herein is general in nature and is not intended, and should not be construed, as professional advice or opinion provided to the user, nor as a recommendation of any particular approach. Nothing in this material constitutes legal, accounting or tax advice and you are advised to seek independent legal, tax and accounting advice prior to acting upon anything contained in this material. Interest rates, market conditions, tax and legal rules and other important factors which will be pertinent to your circumstances are subject to change. This material does not purport to be a complete statement of the approaches or steps that may be appropriate for the user, does not take into account the user’s specific investment objectives or risk tolerance and is not intended to be an invitation to effect a securities transaction or to otherwise participate in any investment service.
To the full extent permitted by law neither RBC Wealth Management nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or the information contained herein. No matter contained in this material may be reproduced or copied by any means without the prior consent of RBC Wealth Management. RBC Wealth Management is the global brand name to describe the wealth management business of the Royal Bank of Canada and its affiliates and branches, including, RBC Investment Services (Asia) Limited, Royal Bank of Canada, Hong Kong Branch, and the Royal Bank of Canada, Singapore Branch. Additional information available upon request.
Royal Bank of Canada is duly established under the Bank Act (Canada), which provides limited liability for shareholders.
® Registered trademark of Royal Bank of Canada. Used under license. RBC Wealth Management is a registered trademark of Royal Bank of Canada. Used under license. Copyright © Royal Bank of Canada 2025. All rights reserved.
We want to talk about your financial future.