US Equity And Economic Review: It's A Slowdown, Not A Recession

Bearish calls on the US economy increased measurably since the first of the year. It’s obviously the result of increase market volatility and weaker economic numbers since the first of the year. But a few key stories this week point to data indicating we’re not in a recession. While industrial weakness is a primary reason for my recent bearishness, Tim Duy noted that the breadth of weak industrial numbers is very small:

The point is that during a recession, the vast majority of manufacturing industries (or all!) are declining. We are nowhere near that point. In other words, even manufacturing – arguably the most distressed sector of the US economy – is not recession. And if manufacturing is not even in recession, it is difficult to see that the US economy is in recession. Or even nearing it.

Second, the indispensable Scott Grannis posted three articles (see here,here and here) that highlighted various bullish statistics. His posts note the following:

Employment growth is strong

Corporate profits are high

The service sector is still expanding at high rates

The household sector has de-levered

Consumer confidence is increasing

Loans are rising

The housing market – especially construction and new home sales – is strengthening.

The slope of the yield curve shows an economy in the middle of an expansion

Finally, see these three post from Invictus at the Big Picture, James Hamilton at Econ Browser and Calculated Risk that further show that we’re nowhere near a recession.

That’s not to say there isn’t genuine cause for concern, however. The latest GDP report showed an anemic .7% Q/Q growth rate. The report contained enough data for bulls and bears. The former will argue the 2.2% Q/Q growth rate in consumer spending is sufficient to propel growth forward while the latter will use the 2.5% decrease in gross private domestic investment to support their argument.