EVER since Joseph advised the pharaoh to expect seven years of plenty followed by seven years of lean, seers have tried—with rather less success—to predict economic upturns and downturns. America has had its seven fat years. It is now in its 88th month of uninterrupted growth; in December this recovery will become its longest ever in peacetime. Britain's streak of prosperity, which began in 1992, is over six years old. While the two economies are on differing paths, both expansions are beginning to creak with age.

Economic forecasts produced by feeding numbers into complex models are notoriously bad at predicting turning points, because they tend to extrapolate the recent past. A better way to spot a coming downturn is to scrutinise indicators that have given reliable warning signals in the past. Many of these confirm that both economies are slowing—and they suggest that Britain's may be headed into recession.

Britain's manufacturing sector is already officially in recession, having contracted for two consecutive quarters. A strong exchange rate and the slump in Asia are largely to blame. Those same factors are beginning to choke manufacturing in America, where the latest survey from the National Association of Purchasing Managers suggests that manufacturing activity has started to shrink. But manufacturing accounts for less than one-fifth of total output in both America and Britain. And both countries' service sectors are still growing strongly. Domestic demand remains buoyant, supported by rapid real wage increases, easy access to credit and gains in wealth as a result of higher share prices.

Three leading indicators, however, suggest that the good times may not keep rolling quite so strongly:

• Profits have in the past been a good predictor of growth. If profits falter, firms respond by cutting investment or jobs. In addition, falling profits reduce share prices, which may lead individuals to scale back their spending. Ominously, in both Britain and America profits (as reported in the national accounts) fell in both the fourth quarter of 1997 and the first quarter of this year. Profits are being squeezed by faster wage rises, strong currencies and the Asian slump. Dresdner Kleinwort Benson, an investment bank, expects profits to be flat this year in America and to shrink by 15% in Britain.

• Stockbuilding is the smallest part of GDP, but as it is the most volatile component it plays a big role at economic turning points. Some economists have argued that the role of inventories has changed, as just-in-time methods of inventory control allow firms to match production more closely to sales, avoiding a build-up in stocks that might later force them to slash production. Not so: just-in-time has allowed firms to reduce the level of stocks they keep, but stockbuilding remains as volatile as ever (see chart)—and hence just as capable of depressing growth. Swings in stockbuilding were a main cause of recessions in the early 1990s in both America and Britain, accounting for three-fifths of the drop in America's GDP.

The most recent stock figures point to slower growth ahead. Both Britain and America saw unusually heavy stockbuilding in the first quarter, accounting for at least one-third of GDP growth. Figures are not yet available, but bulging warehouses are likely to have prompted firms to reduce stock levels in the second quarter, trimming GDP growth again.

• The yield curve has long been a powerful predictor. In normal times long-term bond yields are higher than short-term interest rates, to compensate investors for the higher risk of parting with their money for a longer period. But just before recessions or sharp slowdowns, yield curves have often inverted—ie, short-term rates have risen above long-term bond yields. Since 1955 every American recession has been preceded by an inversion of the yield spread; only once, in the mid-1960s, has an inverted spread not been followed by recession.

On this basis, alarm bells should now be ringing in Britain, where the yield curve has been inverted since last year. In contrast, America's is flat, with short-term rates roughly the same as ten-year bond yields.

Taken together, these three indicators suggest that a sharp slowdown may be in store for Britain; there is also a smaller risk of one in America. Why should Britain's more youthful recovery expire before America's longer-lasting one?

The usual way in which expansions come to an end is that an economy overheats, inflation rises and central banks are forced to raise interest rates. This is what is happening in Britain. In contrast, America's inflation rate has remained surprisingly subdued, which is why most forecasters see no need for higher interest rates that might foreshadow a sharp slowdown. The reason for this, argues John Makin, an economist at Caxton Associates in New York, is that, unusually, investment rather than consumption has led America's expansion. Business investment has increased more rapidly than in any previous recovery since the 1960s. The fact that expansion has been driven by supply as much as by demand has kept inflation low.

The danger, says Mr Makin, is that while policymakers are ever alert to the possibility that excess demand will fuel inflation, they are less experienced at ending investment-led expansions. The two big investment-led recoveries this century—America's in the 1920s and Japan's in the late 1980s—ended in deep recessions. The risk is that over-investment, encouraged by a booming stockmarket, could lead to over-capacity, declining profits and—eventually—to a nasty contraction.

Speed limits

What would be particularly awkward is a slowing economy combined with rising inflation, which would increase the chance of a sharper downturn. This is Britain's current dilemma. The Bank of England's monetary policy committee left rates unchanged at 7.5% at its meeting this week. However, many economists reckon that the committee may be forced to lift rates next month. Britain's inflation rate rose to a six-year high of 4.2% in the 12 months to May—twice as much as in any other large industrial economy. The underlying inflation rate (excluding mortgage interest payments) rose to 3.2%—way above its 2.5% target. The increase in the annual growth of private-sector pay to more than 6% suggests that inflation could rise further.

The Fed, by contrast, has held its basic interest rate unchanged at 5.5% since March 1997. In the absence of a slump in Asia, it would probably have raised rates by now to slow the economy. America's core inflation rate (excluding fuel and food) has edged up to an annualised 2.7% in the past six months. But many commentators seem to think that the expected slowdown in America's growth will eliminate any case for raising interest rates now, helping the economy to a soft landing.

Don't bet on it. It is true that America's GDP growth may have slowed to less than 2% in the second quarter, down from an annual rate of 5.4% in the first quarter. Many forecasters expect growth to be in the 2 1/2-3% range in the second half of the year. But that may still be more than the economy can handle, particularly as America's unemployment rate (4.5% in June) is unusually low and will remain so unless growth falls below its long-term trend of around 2 1/2%. If the labour market remains this tight, wage inflation could continue to edge up, pushing consumer prices up too.

America's inflation rate has stayed low, in part, thanks to cheap imports because of the strong dollar. This cannot last forever. A weaker dollar would increase the risk of rising inflation as the economy slows—and hence the chances of a recession.

But perhaps the biggest reason for fear is the almost total lack of it in America. Britons talk openly about the possibility of a recession, and soon. In America, by contrast, many people seem to think that the business cycle is dead and are investing as if prosperity will continue forever. Less optimism, and more caution, might make the curves ahead less dangerous.