By Don Schreiber, Jr.– WBI Founder and CEO
The biggest question on the minds of market participants lately has been “is a recession near?” The economy is giving us mixed signals as investors anticipate the fate of the long-running bull market. While many investors are left wondering if a recession is near, we can’t help but survey the latest economic signals. Experts say there is a 35% chance of a nearing recession over the next 12 months, which is up from 15% a year earlier. So what exactly are the mixed signals the market is giving?
Here’s a list of economic conditions indicating positive sentiment (bull market extension) or negative sentiment (recession).
- (Positive) We are at 50-Year lows when it comes to jobless claims. Companies have had an increase in layoffs and more citizens are applying for unemployment.
- (Positive) Consumer spending started the year sluggish and has bounced back. Credit conditions are improving and interest rates are declining.
- (Negative) The housing market has been soft over the past several months. There has been a shortage of affordable houses for consumers, new home sales have dropped over the last year.
- (Negative) U.S. factory orders for business equipment have gone on a downward trend over the last couple of years.
- (Negative) Global growth outside of the U.S. is slowing, we’re seeing recession trends all over the globe. We need fiscal stimulus across the globe, companies have stopped spending money.
- (Positive) U.S. President, Donald Trump, is looking to refinance U.S. debt in an effort to drop interest rates down to zero and propel fiscal stimulus.
- (Positive) U.S retail sales advanced 0.2% more than expected in August. Consumer spending accounts for about 70% of the economy.
- (Negative) The three-month and 10-year yield curves have been inverted over the last few months. Inverted yield curves have often been a sign that a recession is near. Inverted yield curves are one of the most closely watched indicators by economists.
- (Negative) Economic activity in the manufacturing sector contracted in August. Though manufacturing does not make up a significant portion of the economy, manufacturing influences consumer spending and jobs.
Though there seem to be recession trends surrounding the markets, there are also some areas of strength. Though the yield curve has inverted, housing and manufacturing have slowed, and global growth is slowing, there are still some signs of hope for the markets. With the American consumer spending, low-interest rates, and high retail sales, perhaps the consumer can help support the market for a bit longer. Should consumers fear that a recession is near? We believe it is certainly an area of concern, but taking all of these mixed signals into consideration, we can’t say for certain that a recession is right around the corner.
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