E A Recession Is Not Right Around The Corner

With U.S. economic data continuing to deteriorate, many investors, traders, and economists are worried about the possibility of an imminent recession. Such fears are overblown. Here’s why.

U.S. manufacturing is still growing

Manufacturing data is probably slowing down the most out of all the economic data. After all, U.S. Industrial Production fell 0.2% in September after a 0.1% decline in August 2015.

However, investors shouldn’t be too worried about the Fed’s Industrial Production data. They should also look at the ISM Manufacturing Index. The ISM is still above 50, which signals that the manufacturing sector is still growing albeit at a very slow pace. The ISM Manufacturing Index almost always falls below 50 (i.e. signals contraction) before a recession begins.

Investors assume that “manufacturing isn’t important because it’s the service sector that drives the U.S. economy.” Although it’s true that services accounts for a larger portion of GDP than manufacturing, the manufacturing sector is often a leading indicator of the overall economy. In addition, U.S. manufacturing is actually bigger than Chinese manufacturing (dollar value)! So if the manufacturing sector has yet to contract, the odds of an economic contraction are slim.

Consumer Confidence is rising

The University of Michigan’s Consumer Confidence Index is still rising. Since the U.S. economy is primarily driven by the service sector, Consumer Confidence is a key component in gauging the health of the economy. Confident consumers will result in more sales, which will drive the economy.

Like the ISM Manufacturing Index, Consumer Confidence almost always declines significantly or plateaus for many years before a recession begins. The Consumer Confidence index is still rising, so a recession cannot be just around the corner.

Unemployment is very low

Weekly unemployment claims are currently sitting at 15 year lows. This is positive for the U.S. economy on multiple fronts: