Regime Assessment:

• Regime: Transitional / Fragile Balance
• Regime Confidence Index: Medium Confidence
• The regime is fragile.

Why This Regime:

• The dominant drivers for this assessment are the U.S. Treasury yield curve signals and the neutral stance of industrial production and capex intent. The U.S. Treasury Yield Curve (slope) is Flat/Neutral (1), while the 10-year minus Fed Funds rate signal is 'Bullish' due to an inverted or flat curve, explicitly indicating a potentially restrictive or recessionary environment (2). Industrial Production is Neutral (3), as is Capex Intent (4), suggesting stable but not robust growth.
• Dynamic weighting prioritized signals with High Aggregation Weight and High Interpretation Confidence. The yield curve signals (1)(2), Industrial Production (3), and Durable Goods ex-Transportation (5) all held high weight due to their fundamental macro relevance and strong confidence.
• The Housing Lead Signal was downweighted due to its Low Conviction, Mixed Signals, and Internal Conflict Flag (6). Its neutral assessment, therefore, had less influence on the overall regime call.

Alignment & Tensions:

• Signals generally reinforce a state of moderate activity. Industrial Production (3) and Capex Intent (4) are Neutral, aligning with a stable rather than accelerating growth picture. The Explicit Neutral Rate Proxy indicates a Near neutral policy stance, suggesting non-accommodative monetary conditions (7).
• Tensions exist primarily between the Bullish Durable Goods ex-Transportation signal (5), indicating strong core demand, and the implications of the yield curve signals. The 10-year minus Fed Funds rate signal's 'Bullish' label (2) denotes an inverted or flat curve, warning of potential restriction.
• These tensions do not overturn the regime call because the broader set of high-weight signals, including two yield curve indicators and industrial activity, lean towards caution or neutrality. The historically reliable warnings from a flat or inverted yield curve (2) outweigh the single strong demand signal in defining the overall regime.

Scenario Balance:

• The dominant scenario is a continued fragile balance, characterized by neutral industrial activity and business investment (3)(4), with a flat or mildly inverted yield curve signaling ongoing caution (1)(2).
• Primary upside risk: A sustained acceleration in core manufacturing demand and broader industrial production growth could shift the regime towards expansion (5). This would be triggered by persistent 3-month durable goods ex-transportation growth above +1% or industrial production above +3% year-over-year (5)(3).
• Primary downside risk: A notable deceleration in business investment or industrial activity, coupled with a deeper or sustained yield curve inversion, would signal a shift towards a more defensive regime (4)(2).

What Would Change the Regime:

• A sustained steepening of the U.S. Treasury Yield Curve (slope composite) above 0.75 (1), or the 10-year minus Fed Funds rate spread consistently exceeding 0% and steepening (2).
• A composite score for Capex Intent falling below -0.75, indicating a clear contraction in business investment (4).
• Industrial Production year-over-year growth rising above +3%, combined with a shift in the mining share of GDP, signaling a strong industrial expansion (3).