With all the recent talk about where the US economy is heading, Barron’s published an informative article this weekend suggesting the US is not headed into a recession. What follows are my summary notes from this article supporting their argument.
- GDP is likely to grow at 3% (or higher). Since consumer spending is by far the largest component of GDP, what will motivate the consumer to spend more in 2016?
a) Lower energy prices
b) Growth in salaries and wages
c) Greater consumer confidence
- Each of the past 6 recessions was been preceded by a spike in crude oil prices. Not happening now!
- Each of the past 11 recessions (since WWII) was preceded by an increase in the jobless rate. We haven’t seen an increase in the jobless rate in 3 years!
- A reliable leading indicator pointing to an impending recession is the volume of new claims for unemployment. Currently, new claims for unemployment are at one of their lowest levels in decades!
When markets drop like they have in 2016, it is not uncommon to start seeing articles about a possible upcoming recession. Though no one knows the future, we believe this article makes a strong case against an impending recession.