Coming into the year, this question would have been dismissed as absurd. As I wrote back in January, the prevailing view in early 2015 was that U.S. growth was set to accelerate and that the U.S. was “decoupling” from the world. Challenging that viewpoint, I wrote the following:
“Collectively, these factors suggest that the U.S. is not immune to a global slowdown. Indeed, it is already starting to feel the effects if we look at anything except the S&P 500. From easy monetary policy to plummeting yields and inflation expectations, the U.S. looks very much like its global peers. Moreover, the widening of credit spreads and outperformance of defensive sectors suggest that market participants are already starting to appreciate this and position accordingly.”
Fast forward to today and we have witnessed slower economic growth in the U.S. and a number of industrial indicators to pointing to an increased probability of recession.
1) Durable Goods orders excluding transportation have declined -5.3% over the past year. Recession?
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2) The ISM Manufacturing PMI has declined -13.5% over the past year. Recession?
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3) Over the past 10 months, U.S. Capacity Utilization has declined -1.9%. Recession?
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Is the U.S. Entering a Recession?
Based on the above evidence, the odds of a recession have certainly increased from where they stood at the start of 2015; it would be hard to argue otherwise. But there are no certainties when it comes to forecasting and predicting recessions is fraught with difficulty. There were many instances in the past where manufacturing/industrial indicators turned down without pulling the U.S. economy into a recession.
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