The tech IPO market has become a good predictor of a recession and this chart shows why we may be due for another one soon


Warning: Another recession may be dead ahead.

It’s hard to predict exactly when an economic downturn will happen. But if you had kept a close eye on tech initial public offerings over the last three decades, you might have noticed a telling pattern.

In the run to the last three recessions, the number of tech IPOs increased. More importantly — and more clearly — the quality of the companies going public (in terms of the number of companies that were profitable), declined right before each economic downturn.

You can see the trends in the chart below, which is based on data collected by Jay Ritter, a professor of finance at the University of Florida who has closely followed the IPO market. The trends are most marked during the dot-com boom and bust of the late 1990s and early 2000, when the portion of companies going IPO that were profitable declined markedly.

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