News

The Next Recession is Coming… Again

chart from research.stlouisfed.org

Regular readers will recognize this headline. The next recession is always coming. Human nature being what it is, the economy will always have cycles just as the world will always have seasons. The excesses that build up in good times lead to imbalances that get corrected by economic downturns.

The most notable feature of the current economic expansion is its slow, plodding pace. Most people with jobs or in business are familiar with one of the reasons for this: unprecedented expansion of the regulatory state. Our shop and many others in many lines are coping with new kinds of nonsense that hampers production or service. (We are not arguing for a Darwinian, regulation-free society, of course.)

The silver lining in our plodding economy is the lack of a boom in any major sector that could create a big downturn. New home construction has not really exceeded the sixty-year average. According to the National Auto Dealers Association, vehicle sales–while near a record–only replaced 1/15th of our vehicle fleet last year. It seems to us that the peak in auto sales lies ahead of us. Capital spending and business investment, which has at times gotten too inflated in the past, has remained extremely subdued.

Energy, of course, did boom—and then busted. But our diverse and dynamic economy has largely absorbed the job losses, and consumers and businesses are enjoying unforeseen low gasoline and energy prices. Corporate earnings have not been great, but should strengthen in the quarters ahead.

The Index of Leading Economic Indicators points to near-term trends in economic growth, and it has flashed a steady positive reading for years. The bond market speaks to us about economic conditions through the yield curve, which remains encouraging and positive. LPL Research publishes a Current Conditions Index which measures economic vitality right now—and it has remained in positive territory. LPL Chief Economist John Canally draws mostly comforting conclusions from the latest labor market statistics (ht.ly/v7Co3003MvP )

So yes, the next recession IS coming. We just do not think it will arrive soon. Our plodding plow-horse recovery continues, no boom—but no bust either. This is good news for investors.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.