United-States | Economic outlook S2 2019

No sign from typical leading recession indicators in the US

We have identified four indicators that typically deteriorate 12 to 18 months ahead of a recession: weekly jobless claims, the Conference Board Leading Economic Index (LEI), single-family housing permits and corporate profit volumes. Historically, recessions have always been preceded by a sharp deterioration in at least three of these four indicators.

This is not currently the case. In spite of the slowdown in job creation numbers, weekly jobless claims are still at low levels, the LEI has reached new highs, single-family housing permits have turned back up and corporate profits have been more or less stable since 2016.

That said, a yellow light has been flashing since the manufacturing ISM new orders component dipped below 50, even if historically this does not necessarily imply the onset of a recession (cf. 2012 and 2015).

An escalation in the trade war is a factor to watch. The question is, with the US elections now approaching, will President Trump want to take the risk of dampening the economy further? If he wants US growth to be accelerating during the 2020 election period, then a trade agreement will have to be found in the next few months. As soon as the first half of 2020 is in the rear-view mirror, it could be tempting for the Chinese to stall negotiations until his successor is elected.

 

Glossary:

Conference Board: Founded in 1916, the Conference Board is a non-profit business membership and research group that compiles data from a great many economic sources.

QE or Quantitative Easing: An ‘unconventional’ central bank monetary policy that involves buying massive quantities of debt from financial institutions.

TLTRO: Targeted longer-term refinancing operations are long-term loans (three years) extended by the ECB to eurozone banks.

 

See also : Europe| Economic outlook S2 2019

 

The opinion expressed above is dated September 2019 and is liable to change. Latest available data is used.

 

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