USA at Late-Cycle as Slow-Down Takes Root

RBC GAM Chief Economist Eric Lascelles (right), Jeremy Richardson Senior Portfolio Manager at RBC Global Equity (center) and Richard Farrell, Portfolio Manager at RBC Emerging Markets Equity (left)

Stockholm (Ekonamik) – 2019 started on a gloomy note following forecasts by international organisations that consistently suggest a slowdown in global economic growth for the next twelve months. As was the case for China and the Eurozone, expectations for a slowdown of economic growth were either confirmed for the USA. Although this does not yet appear to be a cause for alarm, observers should be conscious of the progress that the USA has made along business cycle in order to best react when a recession comes, according to RBC Global Asset Management.

A review of the figures shows it does not yet appear that we are on course for an imminent recession. The consensus seems to be that the global economy will grow at the range of 3% to 3.5% in 2019. But expectations seem to be adjusting downwards with the IMF revising its forecasts for the world economy for 2019 from 3.7% in October 2018 to 3.5% in its January 2019 report.

The USA is expected to contribute between 2.5% and 2.7% to global growth in 2019 down from 2.7%-2.9% in 2018. Similarly, China for all the caveats about the quality of its official figures, has also seen downward revisions of approximately 10 basis points to its economic growth for 2019, but remains within a consensus range of 6.2%-6.3%.

However, given the cyclical nature of economic growth and financial markets, RBC Global Asset Management’s Chief Economist, Eric Lascelles, argues that it is perhaps more informative to understand where in the business cycle we are in order to prepare for the next recession. In a recent presentation in Stockholm he reviewed a range of measures of the US to gauge its progress.

“RBC’s US business cycle scorecard presents a relatively consistent view of the USA going through the late stages of the business cycle. This is the story told by rising and historically high housing prices, relatively high annual inflation, flattening but positive US Treasury bond term spreads, rising Fed rates, volatile and falling equity returns, low unemployment and rising wages and fading effects from last year’s fiscal stimulus,” says Eric Lascelles.

All things considered, it is perhaps more likely that we are between inflection points than necessarily unwittingly knocking on the door of the next recession.

Picture © Ekonamik

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