Is a Recession Around the Corner?
China’s economy is slowing down, the United States economy appears to be slowing as well, company earnings are being revised downward, and global caution seems to be rising. Is a recession just around the corner?
The short answer is, maybe. While there was significant euphoria related to tax cuts in 2018, we have continued to believe that the impact would be fairly short lived and that certainly does appear to be playing out. A review of past tax cuts tends to show an additional stimulus bump and economic growth and then a flattening of impact. That seems to be occurring now.
A slowdown will certainly have consequences for equity assets as well as interest rates. We are already starting to see some impact from a dip in economic growth of earnings results from companies, including major technology companies.
In a recent CNBC article, a widely watched economic statistic indicating future economic activity is beginning to show signs of a weakening economy. In this article they stated:
Source: January 3, 2019 CNBC article by Fred Imbert
“The ISM manufacturing index fell to 54.1 in December, its lowest level since November 2016. Economists polled by Refinitiv expected the index to slip to 57.9 in December, down from 59.3 in November.”
“Comments from the panel reflect continued expanding business strength, but at much lower levels," said Timothy Fiore, chair of the Institute for Supply Management, in statement. "Demand softened, with the New Orders Index retreating to recent low levels, the Customers' Inventories Index remaining too low — a positive heading into the first quarter of 2019 — and the Backlog of Orders declining to a zero-expansion level."
CNBC: Key reading of manufacturing sector drops to lowest level in more than 2 years
While we have believed that a slowdown is likely and a recession possible, the chance that a recession will appear in the next 18 months is beginning to rise. China’s economy is a major driver of global economic growth and trade disputes are not helping global economies. We live in an interconnected world and economies impact other economies on a global basis.
We will continue to monitor conditions. We’ve been investing on the assumption that the slowdown was coming. We will continue to make adjustments as needed.
If you have any questions about this information, please let us know. Always happy to help.