With U.S. economic data continuing to deteriorate, many investors, traders, and economists are worried about the possibility of an imminent recession. Such fears are overblown. Here's why.

U.S. manufacturing is still growing

Manufacturing data is probably slowing down the most out of all the economic data. After all, U.S. Industrial Production fell 0.2% in September after a 0.1% decline in August 2015.

However, investors shouldn't be too worried about the Fed's Industrial Production data. They should also look at the ISM Manufacturing Index. The ISM is still above 50, which signals that the manufacturing sector is still growing albeit at a very slow pace. The ISM Manufacturing Index almost always falls below 50 (i.e. signals contraction) before a recession begins.

Investors assume that "manufacturing isn't important because it's the service sector that drives the U.S. economy." Although it's true that services accounts for a larger portion of GDP than manufacturing, the manufacturing sector is often a leading indicator of the overall economy. In addition, U.S. manufacturing is actually bigger than Chinese manufacturing (dollar value)! So if the manufacturing sector has yet to contract, the odds of an economic contraction are slim.

Consumer Confidence is rising

The University of Michigan's Consumer Confidence Index is still rising. Since the U.S. economy is primarily driven by the service sector, Consumer Confidence is a key component in gauging the health of the economy. Confident consumers will result in more sales, which will drive the economy.

Like the ISM Manufacturing Index, Consumer Confidence almost always declines significantly or plateaus for many years before a recession begins. The Consumer Confidence index is still rising, so a recession cannot be just around the corner.

Unemployment is very low

Weekly unemployment claims are currently sitting at 15 year lows. This is positive for the U.S. economy on multiple fronts:

1. The employment situation tends to be a lagging economic indicator. This means that by the time unemployment rises, other U.S. economic indicators would have already deteriorated significantly.
2. Unemployment claims almost always rise before a recession begins. With claims sitting near rock bottom right now, the chance of an imminent recession is very slim. If a recession is to begin, then we should at least see an uptick in unemployment claims.

The following chart illustrates unemployment claims.

Click on image to enlarge

Housing starts are still rising

Housing starts are still very low historically speaking, which is why this economic recover continues. It's very hard to die by jumping out the ground floor window. Housing starts almost always contract significantly (e.g. by more than 20%) before a recession begins. With housing starts making new highs, a recession cannot be right around the corner.

The following chart illustrates U.S. housing starts. As you can see, Total Starts has not even reached its historical average of 1500k.

Click on image to enlarge

Bottomline

Fluctuations are a normal part of the economic cycle. Keep in mind that U.S. economic data suddenly deteriorated in the summer of 2011 and also suddenly improved by the fall of 2011. Do not be too concerned with the recent deterioration in the economy unless this becomes a trend. Not every slowdown in the U.S. economy results in a repeat of the Great Recession.