Features

The US economic downturn: it’s only a matter of time

With the US economy facing headwinds from trade wars to slowing global growth, talk of a recession is picking up.

935_MW_P04_Markets_Bottom
Robert Shiller is concerned about recession

"Talk of a possible recession is picking up," say Scott Lanman and Katia Dmitrieva on Bloomberg. The US economy is facing headwinds, from trade wars to slowing global growth. The US central bank, the Federal Reserve, has already U-turned on raising interest rates, which has given stocks a boost. But "the bond market is a different story", says Patti Domm on CNBC.US Treasury yields remain surprisingly low, implying investors fear a slowdown more than rising inflation.

"It seems like there has to be an elevated probability of a recession this year or next," argued Nobel Prize-winning economist Robert Shiller at a recent panel discussion at the Inside ETFs conference in Florida. Most economists still expect positive growth for this year, but more than three quarters of corporate chief financial officers expect a recession by the end of 2020.

There are certainly some concerning signs in the data. US industrial production fell by 0.6% in January. The decline "suggests a clear cooling at US factories that could prompt a slower paceof growth this year", reports The Washington Post. And in December, retail sales plunged by 1.7%, notes Michael Pearce of Capital Economics. Such a severe slide may need to be taken with a pinch of salt,but even if spending rebounds, consumption growth "is on track to slow sharply in the first quarter", says Pearce.

Meanwhile, companies have been warning of weaker revenues and profits as the sugar high from Donald Trump's tax cuts starts to wear off. For example, Coca-Cola expects sales growth of 4% this year, down from 5% last year, reports the Financial Times. Regardless of whether a recession hits shortly or further into the future, US stocks don't look to be pricing in any upsets that could lie ahead.

Recommended

Inflation looks likely to take off this year – but there’s one key risk
Inflation

Inflation looks likely to take off this year – but there’s one key risk

With the world’s governments spending money hand over fist, inflation looks certain to take off at some point. But China could change all that. John S…
19 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
Will America’s “healthy reflation” end in inflation?
US stockmarkets

Will America’s “healthy reflation” end in inflation?

Democratic control of the US Congress would give Joe Biden huge scope to stimulate the economy. But willie mean a “healthy reflation” for the economy …
8 Jan 2021
23 December 1913: The US Federal Reserve is created
This day in history

23 December 1913: The US Federal Reserve is created

After much debate, Woodrow Wilson finally signed the bill that would create the US Federal Reserve on this day in 1913.
23 Dec 2020

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
It's not just the UK – we're seeing pandemic housing booms across the globe
Property

It's not just the UK – we're seeing pandemic housing booms across the globe

Soaring house prices aren’t just a UK thing, they’re a worldwide phenomenon. And it’s no coincidence – the underlying cause is much the same. John Ste…
18 Jan 2021