EC When Will The Next US Recession Begin?

Our view for the past 11-12 months has been that last year’s US recession ended in June plus/minus one month, making it the shortest recession in US history. The latest leading economic data indicate that the recovery is intact and that the strong GDP growth reported for the first quarter of this year will continue.

Of particular relevance, the following monthly chart shows that the ISM New Orders Index (NOI), one of our favorite leading economic indicators, remains near the top of its 20-year range. The ISM NOI leads Industrial Production by 3-6 months.

The performances of leading and coincident economic indicators show that the US economy remains in the boom phase of the boom-bust cycle, meaning that the economic landscape remains bullish for industrial commodities relative to gold. Therefore, the small amount of relative strength demonstrated by gold over the past two months is probably part of a countertrend move that will run its course within the next three months.

A year ago our view was that there would be a strong rebound in economic activity fueled by monetary stimulus, fiscal stimulus and the release of pent-up demand after COVID-related restrictions were removed, but that the rebound would be short-lived. Specifically, we were looking for the US economy to recover rapidly during the second half of 2020, level off during the first half of 2021 and return to recession territory by the first half of 2022. This view was revised in response to leading indicators and by October of last year we were expecting the period of strong growth to extend through the first half of 2021.

Based again on leading indicators, we now expect the period of above-average GDP growth to continue throughout 2021, albeit with a slower growth rate during the second half than during the first half. Furthermore, the probability of the US economy re-entering recession territory as soon as the first half of 2022 is now extremely low. To get a recession within the next 12 months there will have to be another shock of similar magnitude to the virus-related lockdowns of 2020.

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